Cabinet okays Insurance Bill

The Union Cabinet approved legislation allowing an increase in the overseas investment limit in insurance companies to 49% from 26% after incorporating changes suggested by a parliamentary panel, boosting chances of its approval by the Upper House. The approval of the insurance Bill, delayed for about six years, was one of several decisions taken in a two-hour Cabinet meeting as the Narendra Modi government seeks to get a move on with policy changes aimed at drumming up investment, improving infrastructure and reviving economic growth.
In another key decision, the Cabinet allowed state-run banks to sell stakes by paring the government holding to a minimum 52%. This will allow State Bank of India and other state-owned lenders to raise an estimated to Rs.1.6 lakh crore, which will help them meet more stringent Basel III capital norms. Ministers also cleared amendments to the Electricity Act, which includes reforms and aims to increase competition. They also approved an ambitious 20,000 megawatt solar power proposal, which the government said will make India a global leader in the generation of electricity from the sun as the programme has no parallel in the world. It also approved a scheme for setting up 1,000 MW of grid-connected solar power projects.
The insurance bill is aimed at removing “archaic and redundant provisions in the relevant legislations and to enable the insurance sector to work for the betterment of the insured with greater efficacy ,“ the government said in a release.
The revised insurance amendment bill is likely to be introduced in the Rajya Sabha on Monday, incorporating most of the suggestions of the select panel set up to review it. The panel had submitted its recommendations to the House earlier on Wednesday, agreeing to a composite foreign investment cap of 49%, which will include all types of foreign investment as opposed to the 26% foreign direct investment (FDI) allowed at present. A composite limit is more attractive as it will allow portfolio investors to participate, making exits and capital-raising easier.
Once the bill is approved by parliament, this will also increase the limit in the pensions sector that follows the same rules as insurance. “The committee recommends that the composite cap of 49% should be inclusive of all forms of foreign direct investment and foreign portfolio investments,“ said the report tabled in the Rajya Sabha. The report has the backing of the Congress party, which brightens the chances of it being passed by the Rajya Sabha, where the government does not have a majority. Panel members of the Trinamool Congress, CPI-M, Janata Dal (United) and Samajwadi Party submitted dissent notes.
The Insurance Regulatory and Development Authority , the sector regulator, has estimated that the additional capital requirement of the insurance sector will be Rs.55,000 crore over the next five years.
According to industry experts, the sector stands to gain an additional Rs.7,800 crore as FDI if the bill goes through. The committee has made two other significant points -tighter provisions to ensure Indian control and ensuring that the higher limit should lead to more funds being infused into the companies instead of providing an opportunity for promoters to cash out.

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