This is a follow up of the reforms note prepared by the Chief Economic Adviser Dr. Kaushik Basu for incorporation in 2011-12 budget proposals. The note has suggested that if it is not possible to pass the Insurance Bill with the provision of the FDI hike to 49 per cent for the insurance ventures as a whole, health insurance can be taken up first since really there is need for massive investments in this sector and the foreign companies during their representation to the SCF have mentioned that they will certainly cover the rural areas as a part of their expansion drive. The view of Dr. Basu who is close to the finance minister Pranab Mukherjee is that this beginning of the opening up of the health insurance sector should be acceptable to the BJP and the Insurance Bill with the necessary amendment can be passed in the budget session itself.

Later based on the performance of the foreign companies in the health sector, the other areas can be opened up with minimum political opposition. Dr. Basu’s note for the budget has specifically mentioned that the opening up of the health insurance sector to 49 per cent FDI will lead to export of super speciality hospital services from India which will bring huge foreign exchange. Further, the note mentions that the ten year disinvestment clause in the insurance sector and FDI restrictions in the reinsurance sector could be removed and foreign reinsurance companies should be allowed to set up representative offices and function in India through a network of branches and divisions. Dr. Basu’s note has set the agenda for immediate action on the liberalization of the insurance sector to be unveiled in 2011-12 budget, sources say.

At the SCF level, the SCF secretariat has taken note of the members views on FDI as also the elaborations on financial inclusion given by the foreign companies representatives at their meeting with SCF members. Many of these companies have given commitment about their big investments in the rural areas. The SCF report will take into account this side also and then the recommendations will be made. One source said that the SCF might even suggest a minimum commitment by the foreign companies for investment in rural areas for endorsing FDI hike. Chairman Mr. Yashwant Sinha will be playing a key role in finetuning the recommendations in the light of the discussions at the SCF meetings.

The insurance industry is witnessing hectic activities with a number of public sector banks and the corporates positioning themselves to set up joint ventures in the context of the possibility of hiking of foreign equity in the JVs. The standing committee on finance of Parliament is also studying the proposal of the Insurance Regulatory & Development Authority (IRDA) which proposes to amend legislation to make Securities Appellate Tribunal (SAT) an appellate tribunal for the insurance sector also.

IRDA’s position is that there should be a separate appellate authority for the insurance sector and this should be SAT. The SCF is expected to make its recommendations at an early date so that the necessary changes can be made in the legislation for presentation to the budget session. Already the Financial Stability Development Council (FSDC) has been formed as a statutory body to coordinate the functioning of the financial market regulators including IRDA. Now the revamped SAT is expected to have the character of umbrella for financial markets. As of now, SAT is the appellate authority for capital market decisions taken by the Securities and Exchange Board of India (SEBI). Following the latest thinking in the finance ministry, the jurisdiction of the revamped SAT will cover insurance, commodity futures and even pension products.

Presently, for decisions under certain sections of insurance laws, the government is the appellate authority while appeals can be made in high courts. Insurance policy holders can appeal to consumer forums and the OMBUDSMAN appointed under the IRDA Act. The revamped SAT will have expert members from the insurance industry. IRDA sources point out that the revamping of SAT on the lines being considered, will certainly help in bringing about greater convergence in the legal interpretation of insurance market laws.

The public sector Indian bank will partner with a foreign insurer for its life insurance business, joining a growing list of local banks venturing into insurance sector. According to the top management sources of Indian Bank, the plan is to forge ties with a foreign insurer who will hold 26 per cent stake in the proposed JV. The foreign company will have the right to hike its equity once the Government allows higher FDI in insurance JVs after the passing of the Insurance Laws (Amendment) Bill. (IPA Service)