The finance ministry’s proposal to delink the FDI limit from the Insurance Act at the time of its amendment is a welcome step forward. The present requirement of legislative approval creates serious practical problems, since Parliament’s endorse-ment is needed for changing FDI policies each time. The only way out, therefore, is to cut the umbilical cord, once and for all, and bring such decisions within the domain of the executive. Barring the political-constituency-driven Left, and other interest groups whose attitude towards enhanced market competition, especially from across the shores, is one of biases and dogmatic hostility, the compulsions for easing FDI caps have, by and large, been understood and accepted. Several insurance companies need to infuse fresh capital in order to sustain themselves and break even, and Indian partners are not able to muster the required funds. The current cap is a constraint for increasing scale to meet the needs of the largely untapped market and must be removed.
We have come a long way since 1991. What is admissible now is a debate on the pace of reforms, certainly not their direction. But legislative changes are a time-consuming process and face uncertainty. The UF government, in 1997, failed to get Parliament’s approval to a Bill on FDI in insurance. The BJP-led NDA government, with the requisite majority to get the Bill passed, managed to permit FDI in this sector. It was in his last Budget that the FM had announced the hike in FDI in the insurance sector to 49%, from the current 26%. But he has not been able to implement his promise. He was able to move ahead with his announcements in aviation and telecom, as those did not need to be vetted by Parliament. Insurance was left hanging by the thin thread of intentions. In the current context, even as the Left-ruled West Bengal government woos FDI to promote growth and jobs in the state, the Left parties insist on opposing the Centre’s policies on the issue.
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Once FDI norms are delinked from legislation, all the Left can do is make its standard noises against the decision, but that can be factored in and need not send confusing signals to the market. The move could, thus, well delink the demons of political compulsions from the rationality of economics, and speed up reforms in insurance.
