Financial Reforms soon?

Some major reforms, especially in the financial sector, are expected in the coming months. With the Left off its back, the Manmohan Singh government is keen to push them through, although the nod of its new partner, the Samajwadi Party, will be necessary. The good news is that the nod in favour may not be difficult to get. SP general secretary Amar Singh said, “We are open to discussing it (the proposed reforms). As we promised earlier, we will not be dogmatic or rigid in our approach.’’ Singh was responding to finance minister P Chidambaram’s statement on Wednesday in which he had said that the government would try to take the reforms process forward and mentioned insurance sector reforms as a priority.Amar Singh indicated that his party’s approach would be different from that of the Left—pragmatic considerations rather than ideological ones would guide it. To drive home the point, he added, “We will not be a stumbling block in any rational decision-making.’’It’s learnt that the PM is as eager to push through reforms as his FM. A couple of days before the trust vote, Singh had told his close aides that three sectors required special attention—insurance, pensions and banking. Labour reforms too are long awaited, but the government knows that this is much more politically fraught, and is unlikely to do anything on which there is no consensus among the UPA allies.Official sources said the PM would soon be taking up the issue of reforms with the SP. “Our aim will be to build a consensus on these reforms with Samajwadi leaders and to initiate steps to usher them in before the next polls,’’ said a source. Singh believes that valuable time has been lost because of the Left’s “cussedness’’ on reforms.In a move to assuage fears of unilateralism on the part of the government, Prime Minister Manmohan Singh has assured the UPA allies that he would consult them regularly on major issues. The UPA’s win in the trust vote has been credited, among others, to Maharashtra CM Vilasrao Deshmukh, Rajashekhar Reddy, Oscar Fernandes, Margaret Alva and Vyalar Ravi.
Raising FDI cap in insurance from 26% to 49% Creating a statutory regulator for pension sector. This will break the monopoly of EPFO Allowing government’s stake in public sector banks to drop below 50% The reforms can change the bearish sentiment and help reverse the economic slowdown .Govt likely to appoint EPFO regulator, Prime Minister Manmohan Singh, who is eager to make fresh economic reforms, believes that a dose of meaningful reforms would also be an antidote to the general sluggish sentiments and may, in fact, help in tackling inflation and other “aam admi’’ issues Financial sector reforms, covering insurance, banking and pensions, could spur investments and add as much as 1.5% of the country’s growth. That, in turn, would give the government the opportunity to address issues of welfare and distress.The main reform in insurance is to raise the foreign direct investment cap from 26% to 49%. In fact, finance minister P Chidambaram had proposed this FDI hike, but in light of the Left’s total opposition to his proposal, he had to backtrack. But once the cap is relaxed, a lot more foreign money is expected to flow in and help to expand the insurance sector.The Indian pensions sector is totally unreformed. The government wishes to create a statutory regulator for the sector and had promulgated an ordinance for appointing a Pension Funds Regulations and Development Authority. But once again, agreement with the Left proved elusive, and the ordinance lapsed. The appointment of a regulator will set the scene for breaking the monopoly of the Employees Provident Fund Organisation (EPFO), with which both the government and the private sector have to park their pension money currently. The regulator can permit new pension funds and create the framework for them to operate in an open and transparent environment. In turn, pension funds can vie for government or private sector pension money, offer advice on its best utilization and also give companies and individuals options on how best they think their money can be deployed that is, how much in fully secured instruments and how much in the market where returns could be higher but so would be the risk.Finally, the banking sector reforms that have been hanging fire entail allowing the government’s stake in public sector banks to come down below 50% and raising the current 1% cap on voting rights that applies to all other shareholders in state-owned banks.Reformers believe that this will bring in megabucks and enhance banks’ capital adequacy ratio.

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