Financial sector reform Bills: Tough road ahead for government

Last Updated: Sun, Apr 22, 2012 19:52 hrs

Even as the Union government has assured legislation on reforms in the sectors of pension, insurance and banking this year, the road ahead might not be that comfortable for these financial sector Bills. For, the main opposition Bharatiya Janata Party (BJP) has strong reservations over the proposed legislation and wants the government to build consensus on these issues.

It was in Washington yesterday that Finance Minister Pranab Mukherjee expressed confidence about passing the reform Bills on pension, insurance and banking this year.

Today, senior leaders of the BJP told Business Standard the Bills feature several contentious issues. This is more so in the case of the Insurance Laws (Amendment) Bill and Banking Laws (Amendment) Bill, on which the government has not yet held discussions with the Opposition parties.

BJP leaders elaborated that during the winter session of Parliament last year, a senior minister in the United Progressive Alliance (UPA) had invited party veteran L K Advani, along with leader of the Opposition in the Lok Sabha, Sushma Swaraj, and her upper house counterpart, Arun Jaitley, besides former finance minister Yashwant Sinha, to discuss the Pension Fund Regulatory Authority (PFRDA) Bill.

The BJP leaders had sought an option of assured returns for investors, similar to EPF. “The Union government had agreed to make the changes,” said a senior BJP leader. “There was a consensus that Bill would be brought to Parliament. We have waited for it, but it is yet to happen.”

The Opposition parties suspect the government knows its own house is not in order. This is considering that the Bill has not won support from West Bengal Chief Minister Mamata Banerjee and the DMK chief Karunanidhi, whose Trinamool Congress and the DMK are key UPA allies.

The parliamentary standing committee on finance, headed by Sinha, had earlier declined to accept the government’s desire to keep the FDI (foreign direct investment) component out of the purview of the proposed legislation. This may also become a contentious point between the opposition and the government. “We will move amendments if the PFRDA Bill is brought before Parliament without making the necessary changes,” the BJP leader said.

The party’s top brass also has reservations about the banking amendment that seeks to lift a 10 per cent cap on voting rights, besides the Insurance Bill in which the government wants to increase the FDI limit to 49 per cent from 26 per cent in private insurers. These two Bills are stuck because of the differences with the government, the leaders said.

Thus, if the government brings the insurance Bill without proposing a hike in FDI, much of its sting would go; if it does not, the Opposition will oppose. Similar is the case with the banking Bill, which, according to analysts, might be meaningless unless voting rights are increased.

On the question of building consensus on the goods and service tax (GST), the BJP leaders said senior UPA ministers had, during last week’s two-day meeting of the empowered committee, urged the chief ministers and finance ministers of state governments to quicken the process. They also sought a consensus, so as to facilitate its implementation at the earliest. Prime Minister Manmohan Singh had also asked chief ministers to try and build a consensus on the GST.

BJP leaders said they would try for a consensus, but point out that certain states do have differences with the model suggested by the Centre. The empowered committee has been asking for a band of GST rates to begin with, instead of the fixed rates mooted by the Centre. In fact, the Confederation of Indian Industry had also suggested that states be given freedom to have a variation on the GST rates within a band to begin with. Bihar Deputy Chief Minister Sushil Modi, who is chairman of the empowered committee of state finance ministers, had said after a meeting of the panel earlier this month that the states might ratify the constitution amendment Bill to roll out the GST this financial year. That would be after that start of work on the GST laws, he said, indicating that the regime may not come at least before the start of 2013-14.

The finance minister had said in Washington that if various stakeholders, including state governments, were persuaded, the constitutional amendment Bill would “possibly” get through in this or the next session of Parliament. It would then be ratified by a minimum of 15 Assemblies before the end of this year. The Bill is being vetted by Parliament standing committee on finance.

Mukherjee expressed optimism that the Direct Taxes Code would be implemented from the next financial year. The standing committee has given its report to the government with major changes relating to direct tax rates. The exact nature of the revised Bill would decide the chance of a consensus on reforms.

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