The Government and the insurance industry are on the same page with respect to increasing the FDI limit in the sector to 49 per cent, said Finance Minister P. Chidambaram, on his visit to the city on Saturday. He said there was a difference of opinion with the Parliament’s Standing Committee on the issue.
“The Committee has accepted the vast majority of recommendations except one clause — that of raising the present FDI limit of 26 per cent to 49 per cent. I intend to meet and convince the opposition parties that it is in the interest of the insurance industry to raise FDI cap,” said the Minister.
There was not enough capital within the country to spur insurance sector growth. He said the rationale behind the FDI move was that Indian banks (which had promoted many insurance companies) did not have the additional capital required.
“If we keep the existing cap, no extra capital will flow. Even after raising the cap to 49 per cent, the balance 51 per cent of the capital will have to be found in India. That will be difficult,” he added.
Inflation
While accepting that inflation was still a concern, Chidambaram said the steps taken by the Government had managed to bring down the headline inflation rate from 10 per cent to about 7.5 per cent. Elaborating on the impact of Government measures taken to arrest inflation, he said, “We have taken steps that will bear fruit but with a time lag. Some of our steps will cause inflation to rise in the short-term — like adjusting the price of diesel will lead to rise in inflation in the short-term.”
On the issue of new banking licences, the Minister said there would be two considerations — the draft guidelines prepared by the RBI and the Banking laws amendment Bill which is in Parliament. “Anything we do has to be in conformity with the amendment Bill which we expect to pass in Parliament. We have discussed this with the RBI and it has agreed to take the process forward. Meanwhile, I have assured them that we would do our best to get the amendment passed in the winter session."
On whether the recommendation of the Shome panel will pave the way for an eventual settlement of the Vodafone case, he said, “The report will be made public in the next few days. Then we will wait for feedback and thereafter we will make up our mind on how we approach the issue of retrospective taxation. The hope is that once we find a way forward, pending disputes as well as anticipated disputes can be resolved,” he added.
About the challenging economic environment, he said the government was committed to the well-being of the financial markets which is the ‘heart of the economy’.