NEW DELHI, June 3: The Centre is likely to allow foreign-equity participation in Indian private-sector insurance companies, sources say.An in-principle clearance to foreign-equity stake was reportedly given by the highest level a month before the union budget was presented. But the finance ministry pussyfooted on incorporating the foreign-participation clause in the budget fearing an adverse reaction from powerful labour unions and political parties. It was felt that an announcement will substantially dilute the swadeshi thrust of the budget.The issue had been left deliberately vague by finance minister Yashwant Sinha in his budget speech when he claimed that only Indian companies will be allowed entry into the sector. "The idea is to sample public and political reaction to the move and arrive at a more concrete proposition at a later date," a senior finance ministry official said.
"A foreign company can register itself under the Companies Act and become an Indian company. By this logic, 100 percent foreign equity will be permissible but this will not be the case with insurance. A defining limit will have to be imposed," he said.
One of the important reasons why foreign-equity participation is being pushed is because domestic companies may not have the technology or resources to work effectively in the sector. Demands to urgently funnel long-term funds into the infrastructure sector was also an enabling factor.
Though foreign participation has been agreed to in principle, the extent of participation is still being worked out. The ministry is expected to place a range of equity options that a foreign insurance company can have in India before the union cabinet for a final decision.
The equity options that are being examined by the ministry range from 10 per cent to 49 per cent, but it is likely that the figure will be somewhere in between.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
