Big-bang reforms getbigger
BS REPORTER
New Delhi, 4 October
In a slew of big decisions, the Cabinet today cleared two important
financial sector reform Bills, aimed at increasing foreign direct
investment (FDI) in the insurance sector to 49 per cent from the
current 26 per cent and opening of the pension sector to FDI in line
with the insurance sector. It also approved the Companies Bill, 2011,
making spending on corporate social responsibility a mandatory
provision for companies above a threshold.
The Cabinet also gave the green signal to amendments in the
Competition Act, bringing all voluntary mergers and acquisitions in
all sectors under the purview of the Competition Commission of India
(CCI). Specific cases such as the merger of afailed bank with another
in the public interest will, however, be exempted from CCI purview and
be in accordance with Reserve Bank of India directions.
The Cabinet also gave its nod to the Forward Contracts Regulation
(Amendment) Bill to give more teeth to the Forward Markets Commission
and introduce more products in commodity futures.
To give a boost to the infrastructure sector, the Cabinet committee on
infrastructure approved a tripartite model agreement between lenders,
the project authority and the concessionaire to operationalise
infrastructure debt funds.
The Cabinet also cleared a proposal to declare the airports at
Lucknow, Varanasai, Tiruchirapalli, Mangalore and Coimbatore as
international airports.
It also approved the document for the 12th Plan, which aims at an
average annual growth rate of 8.2 per cent during 201213 to 2016-17.
The Plan document will be considered by the National Development
Council later this month.
The proposed National Investment Board was on the agenda but did not
come up, as the Cabinet note on that was not circulated to all
departments and ministries. The proposal to expeditiously clear big
infrastructure projects is likely to be taken up in the next meeting.
The Cabinet cleared a 49 per cent FDI cap in private insurance
companies. The pension sector will have either a49 per cent FDI cap
(in case the insurance Bill is cleared by Parliament) or 26 per cent.
Even as the Cabinet approved a higher FDI cap in the insurance sector
through amendments in the Insurance Laws (Amendment) Bill and the
Pension Fund Regulatory and Development Authority (PFRDA) Bill, the
government may not find it easy to pass these pieces of legislation in
Parliament.
That is because the main Opposition, Bharatiya Janata Party (BJP),
opposed an increase in the FDI limit in the insurance sector and
insisted the Bill be again brought to Parliaments standing committee
on finance, headed by its senior leader Yashwant Sinha.
However, Finance Minister P Chidambaram exuded confidence the
Opposition would be persuaded to get the Bills passed.
"I have already included the insurance Bill in the list handed by me
to two leaders of the Opposition. I will ask them to consult their
colleagues and support the Bill. We will continue to engage all
political parties in Parliament to get it passed," Chidambaram told a
press briefing after the Cabinet meeting.
He said he also took note of senior BJP leader L K Advani's statement
that "they" were opposed to FDI in retail but in other sectors "they"
supported it.
However, a senior BJP leader said the party was going to oppose the
amendments, as those were against the recommendations of Parliament's
standing committee.
The committee had recommended retaining the FDI cap in the insurance
sector at 26 per cent.
PFRDA Chairman Yogesh Agarwal said he would be happy with 26 per cent
FDI in the pension sector. However, if it was to become 49 per cent in
line with the insurance sector, he would welcome the move more, he
said.
He said a lot of foreign interest was seen from the US and Europe in
the pension sector in India.
Besides the opening of the pension sector, the PFRDA Bill gives
statutory powers to the interim regulator, constituted through an
executive order in 2003.
Rajesh Sud, CEO & Managing Director, Max Life Insurance, said, "The
Cabinets approval to allow FDI up to 49 per cent in the insurance
sector will bring in domain capital to the industry. The insurance
Bill has several other important elements which, once approved in
Parliament, will have a long-term impact on the development of the
sector." PNandagopal, MD & CEO, IndiaFirst Life Insurance, explained
that more capital was always welcome and the industry could leverage
both financial and technical capital through the FDI route.
FDI reform measures cleared by the Cabinet last month were all
executive decisions. However, major reform proposals cleared today are
Bills, which will require Opposition help to pass.
Cabinet clears insurance, pension, companies, FCRA Bills; tough
legislative road ahead SEVEN GAME-CHANGERS
The keydecisions taken bythe Cabinetand whattheywould mean Amendment
to Companies Bill, 2011
To make spending on corporate social responsibility a mandatory
provision for companies above a threshold Competition Act (Amendment)
Bill
To bring all voluntary mergers and acquisitions under the purview of
Competition Commission of India International status to five airports
To declare airports at Lucknow, Varanasi, Tiruchirapalli, Mangalore
and Coimbatore as international airports Tripartite model for
infrastructure debt funds
To bring into operation a model agreement between the concessionaire,
the project authority and infrastructure debt funds Insurance Law
Amendment Bill
To raise the FDI cap in private insurers to 49% from the existing 26%
Pension Fund Regulatory and Development Authority Bill
To give statutory powers to the interim pension regulator and open the
sector to FDI Forward Contracts (Regulation) Amendment Bill
To introduce more commodity futures, give more power to Forward
Markets Commission
OPTIMISM ALLAROUND
"I am optimistic we will be able to take the support of the BJP and
other political parties in getting these Bills (insurance and pension)
passed"
PCHIDAMBARAM
Finance Minister
"What you are seeing is a series of steps which basically move things
forward. I hope the corporate sector will read the message"
MONTEKSINGH AHLUWALIA
Deputy Chairman, Planning Commission
"It (rise in the FDI cap in insurance) will triggera cycle of economic
activity across various sectors — real estate, construction and
information technologyto name a few"
RAJESH RELAN
MD & Country Manager, MetLife India
REFORM RUSH 7 >>NewCompanies Bill to compel CSR spending
>FCRAchanges, cheap sale of pulses getnod
>CCI to getmore teeth in newCompetition Act
>Only 5% people in India investin insurance: FM
'Fiscal deficit important policy input'
BS REPORTER
Puducherry, 4 October
The Reserve Bank of India (RBI) today said the government's final data
on the fiscal deficit for this financial year would be important in
deciding its monetary policy.
Speaking to the media after the central bank's board meeting here, RBI
Governor DSubbarao said, "In the next few weeks, we have to determine
what the final outcome might be. That would determine our monetary
policy calculation." He added it was not yet clear what the fiscal
deficit for this financial year would be. The Budget estimate of the
fiscal deficit for this financial year was 5.1 per cent of the gross
domestic product. Last week, at a half-yearly meeting aimed at
finalising the borrowing calendar, it was indicated the fiscal deficit
this year would be consistent with the Budget estimate. A final fiscal
deficit number would, however, be brought out in the next few weeks.
When asked how the government should tackle the fiscal deficit,
Subbarao said it had had already tried hard to address the issue.
"What else the government has to do is a question of detail. But as
far as RBI is concerned, the final number will be important. How they
get it will be important for the country, for the economy, and for all
of us. But I am saying in the short term, for monetary policy
calculations, the number is important," he said.
The monetary policy review, scheduled for the end of this month, would
consider inflation and also provide a fiscal outlook. Efforts would be
made to rein in inflation, without compromising on growth, Subbarao
said, adding the growth drivers for the long-term economic situation
were intact.
The board meeting held today also discussed the Kelkar panel
recommendations in this regard, he added. "We also reviewed the global
and domestic macroeconomic situations. In that connection, we
discussed the Kelkar committee recommendations to the central
government. That is relevant and important to RBI because what the
fiscal deficit is going to be is an important variable in our monetary
policy calculation," he said. RBI has recommended cutting subsidies to
address the fiscal deficit.
Today's meeting also discussed priority sector lending, the Nair
committee recommendations and the vision document on the payment and
settlement systems, Subbarao added.
RBI reviews general macro situation, Kelkar & Nair panel's recommendations
RBI Governor Duvvuri Subbarao Central bank's position paperon
studentloans BS REPORTER
Puducherry, 4 October
The Reserve Bank of India (RBI) is to issue a position paper on
educational loans. The effort would be to push the education loan
schemes in various banks, on the basis of the complaints the central
bank had got from various stakeholders, said RBI Governor DSubbarao.
The decision was taken in its central board meeting here, based on
complaints that some banks were reluctant to do much on education
loans, putting up various conditions for issuing these. "This is a
problem everywhere in the country. There are two types of problems.
One is that students are not getting loans and the other is that
they're getting these but get away without repaying, which leads banks
to ask for collateral," he said. ...Islamic banking on radar BS
REPORTER
Puducherry, 4 October
The Reserve Bank of India (RBI) is in correspondence with the
government to look into ways to bring in new rules to accommodate the
concept of Islamic banking, said Governor D Subbarao. Speaking at the
Jawaharlal Institute of Postgraduate Medical Education & Research, he
said: "The current Banking Regulation Act does not allow the model of
Islamic banking.
For full reports, visit www.business-standard.com
Finance Minister, Sebi likely to announce market-friendly steps on Saturday
BS REPORTER
Mumbai, 4 October
Finance Minister P Chidambaram is likely to address the board of the
Securities and Exchange Board of India (Sebi) on Saturday, when some
stockmarket-friendly measures could be announced.
"The Sebi board is likely to announce measures towards lowering
transaction costs, relaxing collateral norms for foreign institutional
investors (FIIs) and other intermediary-friendly measures," said a
source claiming knowledge of the development.
The board on Saturday is likely to consider FII demands on accepting
instruments such as government securities, fixed deposits, bank
guarantees and mutual fund holdings as collateral. Foreign investors
are not allowed to use such instruments as collateral for the value of
their trades, according to margining rules.
Among other things, the board is also likely to discuss the road map
for bringing down the trade settlement cycle from T+2 to T+1. In other
words, the settlement of a securities transaction will be done the day
after the trade.
Now, it takes at least two days after a transaction for the shares to
come into an investor's demat account.
Similarly, Sebi is likely to discuss the implementation and deadline
for achieving the reduced initial public offering (IPO) timeline of
seven days, from 12 days. The market regulator aims to achieve this by
making the facility of applications supported by blocked amount (Asba)
compulsory for retail investors and also by tweaking the distribution
model.
Asba ensures an investor's money debited from his account if he is
allotted shares during an IPO Sebi is also likely to announce
intermediary-friendly measures such as reduction in transaction costs
and further rationalisation of permanent licences granted to
intermediaries.
"The measures announced will be aimed at sending a signal to the
market that Sebi and government are working towards removing major
irritants and restoring confidence," said the source.
At the meeting, Sebi chairman UK Sinha will also apprise the finance
minister on the state of the securities market and highlight the
recent measures taken by the Sebi board in the primary market and
mutual fund space.
Sinha is also likely to discuss the implementation of a common
knowyour-customer (KYC) requirement for the financial sector. Sebi is
already in discussion with other regulators, including the Forward
Markets Commission, for implementation of a common KYC.
Before addressing the Sebi board, Chidambaram is also likely to meet
senior Reserve Bank of India officials here on Saturday.
Finance Minister P Chidambaram
The board mayconsider FII demands on accepting instruments like
government securities, fixed deposits, bank guarantees and MF holdings
as collateral
Financial laws should be reviewed every 10 years'
BS REPORTER
New Delhi, 4 October
Financial sector laws, such as the ones on banking, insurance and
pension, will have a sunset clause if the Financial Sector Legislative
Reforms Commission (FSLRC) has its way.
The FSLRC, which released an approach paper on harmonising financial
sector laws on Monday, is likely to propose a sunset clause of about
10 years in its final report to be given to the government in March
2013.
"From 1934 (when the Reserve Bank of India Act was passed) to 2012,
you cannot have the same legislation in the country. Law itself can
give a sunset clause. It could be 10 years and after that the law can
be reviewed," FSLRC Chairman Justice B NSrikrishna told reporters
today.
According to DSwarup, an FSLRC member, most laws in the country are
ancient and it is necessary to make these relevant to our times. He
pointed out that some foreign jurisdictions have a sunset clause of
about 10 years.
"It has not come out in the approach paper, but has been talked about
in the Commission more than once. So if there is a sunset clause, the
government is obliged to review that particular law after 10 years. It
may come out in the final paper," said Swarup.
The Commission, formed in March 2011 to rewrite and harmonise
financial sector laws, has also proposed a unified regulator for all
financial sector laws including markets, insurance, commodities and
pension. It, however, proposed to keep banking out of this purview.
The proposed body would subsume the Securities & Exchange Board of
India (Sebi), Forward Markets Commission (FMC), Insurance Regulatory
and Development Authority and Pension Fund Regulatory Development
Authority (PFRDA).
According to Swarup, there could be turf wars among regulators. He
said the Commission would consider how legitimate their concerns are
before giving its final views. He added unification of the regulators
should not be difficult as two of them, FMC and PFRDA, are
non-statutory at present. "If there is a will to do it can be done in
three months," he said.
The Commission has also proposed giving statutory backing to the
Financial Stability Development Council, headed by the finance
minister.
The FSLRC has also stressed on independence of regulators. It noted
the current laws allow the government to issue directions to
regulators. The commission wants the government control on regulators
removed.
The financial sectorreforms commission wants to have a sunset clause in all laws
NewCompanies Bill to compel CSR spending, limitauditorclients
BS REPORTER
New Delhi, 4 October
The government today approved changes to the Companies Bill, 2011,
introducing a provision to compel all companies to spend on activities
related to corporate social responsibility (CSR). A company not doing
so or spending less than the required amount would have to explain
why.
The revised Bill is expected to be introduced in the winter session of
Parliament. It has also limited the number of companies an auditor can
serve at any time to 20. It has brought more clarity on the criminal
liability of auditors. The changes include annual ratification of
appointment of an auditor for five years and a new clause for falsely
inducing banks to obtain credit.
"The proposed legislation will bring the law on the subject of
corporate functioning and regulation in tune with the global best
practices...through enhanced accountability and transparency," stated
the ministry of corporate affairs.
According to Pavan Kumar Vijay, managing director of Corporate
Professionals, an entity offering companies a spectrum of services:
"The amendments have made the Bill stricter and law-oriented and will
work in favour of attracting more domestic and foreign investors to
Indian companies." The amendments in the Bill are in line with
suggestions put forward by Parliament's standing committee on finance.
Notably, unlike most Bills, this one was referred twice to the panel.
The first report, on the Companies Bill of 2009, was given on August
31, 2010. AMENDMENTS TO THE COMPANIES BILL, 2011
|Provision to make expenditure on CSR mandatory; preference to areas
in vicinity of operations |Brings in whole-time directors within the
purview of "key managerial personnel" |Clarification of provisions
relating to private placement; pegging interest rate on
inter-corporate loans with government-dated securities
FCRA changes, cheap sale of pulses and edible oils get nod
BS REPORTER
New Delhi, 4 October
After much delay, the Union cabinet today finally cleared the
amendments to the Forward Contracts (Regulation) Act, giving more
teeth to the commodities market regulator, the Forward Markets
Commission, and opening the door for introduction of products such as
options trading in the futures market.
It also approved ~884 crore for end-to-end computerisation of the
Public Distribution System (PDS) in the country, to be implemented
with state governments.
"The amendments (to the FCRA) would benefit various stakeholders,
including farmers, to take the benefit of price discovery and price
risk management and also enhance the public accountability of the
regulator by providing for an appellate authority," Finance Minister P
Chidambaram said.
The Bill had been kept off the cabinet agenda for a long while because
of staunch opposition from the Trinamool Congress. With the party no
longer part of the governing coalition, the amendments were cleared.
Shreekant Javalgekar, managing director and CEO of MCX, the country's
largest commodity exchange by volume, said the Bill, once approved by
Parliament, would introduce new tools for hedging and price risk
management. This would bring about better price discovery and create
benchmark prices for commodities widely produced or consumed in India.
Separately, the cabinet extended and revised a scheme to supply pulses
and edible oils at cheaper prices to families below the poverty line,
through the PDS. Their prices have been rising over recent weeks. The
central government would give a subsidy of ~20 a kg for distribution
of pulses through the PDS; for edible oils, it will be ~15 a kg. Both
schemes would be implemented through state governments.
The Cabinet also extended an ongoing ban on export of edible oil, with
the exception of 20,000 tonnes of branded edible oil in five-kg
packages.
|Definition of forward contract to include commodity derivatives and
corporatisation, demutualisation and intermediaries |Specific
amendment proposed to allow trading in options in index and individual
commodities |FMC to have nine members from four now |Give powers to
the commission to levy fees on exchanges, members (intermediaries) and
others |FMC will be given an autonomous status; can investigate and
levy penalties if Act is violated; SAT to be designated as appellate
authority |Commission will be given financial powers by creating
ageneral fund |FMC to get powers to appoint more officers and
employees SOME CHANGES TO FCRA
Only 5% people in India invest in insurance: FM
KAVITACHOWDHURY New Delhi, 4 October
With no allies barring the Rashtriya Lok Dal (RLD ) present at today's
Cabinet meeting, the United Progressive Alliance (UPA) pushed through
crucial reforms including allowing foreign direct investment (FDI) in
pension up to 49 per cent and increasing the cap on FDI in insurance
from 26 to 49 per cent.
No representative of the Dravida Munnettra Kazhagam (DMK) or the
Nationalist Congress Party (NCP) were present at the meeting today.
Chidambaram said that the Pension Fund Regulatory Development
Authority (PFRDA) Bill and insurance reform had been pending for
decades. He argued that the insurance sector reform will affect only a
minuscule section of the population. He pointed out that only 5 per
cent people in India invest in insurance.
The finance minister justified the move, saying that the insurance
sector required huge amounts of investment.
Since he took over the finance ministry, Chidambaram has been pushing
for bold measures to revive the economy. In the Cabinet meeting, he
reiterated that the road ahead is very clear.
Having rid of the Trinamool Congress (TMC) baggage, the UPA government
had unleashed its first set of reforms three weeks ago.
Former UPA ally TMC had vehemently opposed the FDI in pension and
insurance sector, labelling them 'anti-people'. During the three-year
coalition with TMC as an ally, the UPA could not decide on these
Bills.
Business Standard had reported earlier that the southern ally DMK was
wary of being seen to be a party of these so called "anti-people"
measures and would give the Cabinet meeting a miss. Chemicals and
Fertiliser Minister M K Alagiri was absent from today's meeting. The
official reason was that he was in Mumbai attending the 'India Chem
2012', which was inaugurated by President Pranab Mukherjee.
However, sources say that Alagiri chose to stay on in Mumbai and not
return to the capital today. Had he wanted, he could have returned by
4 pm to Delhi, in time for the Cabinet meet." The other long-standing
UPA ally, the NCP was also absent as Agriculture Minister Sharad Pawar
was in Vietnam on an official engagement. Heavy industries minister
and the second NCP minister Praful Patel was also not present at the
meeting.
RLD's Ajit Singh was the only other ally present. The problem before
the UPA will now be to get these two bills passed in Parliament.
Congress sources say that they are aware that without the cooperation
of the Opposition, they are unlikely to get it cleared in the Rajya
Sabha. "But we are hopeful of getting it passed," said a senior
Congress functionary.
The DMK, which is the largest ally of the UPA, is not keen to rock the
UPA boat after the TMC exit. However, the party has criticised the
"bold economic decisions" of the UPA such as capping the number of
subsidised LPG cylinders and diesel price hike. DMK chief M
Karunanidhi has spoken out against FDI in multibrand retail.
Finance Minister PChidambaram after aCabinet meeting in New Delhi on
Thursday PHOTO: PTI BJP to oppose insurance, pension Bills
The Bharatiya Janata Party will oppose the Cabinet decision to raise
the upper limit for FDI in the insurance sector from 26 per cent to 49
per cent, when the Bills come up in Parliament in the winter session.
BS REPORTER
CCI to get more teeth in the new Competition Act
BS REPORTER
New Delhi, 4 October
The Cabinet today cleared the proposal to amend the Competition Act.
However, the Competition Commission of India (CCI) will retain its
powers to regulate competition-related issues across various sectors
including banking, insurance, telecom and power, .which have their own
regulators.
While the government has made it clear that no sector will be exempted
from the Act, Finance Minister P. Chidambaram told reporters that
there can be a few exceptions. For example, merger of an ailing bank
with another bank may be exempted from CCI's purview and banking
regulator Reserve Bank of India can take a call in public
interest."Voluntary mergers will come under the CCI, but involuntary
mergers will be outside its purview. We have sought exemption under
section 45 of Banking Act and 37 (A) of Insurance Act," Chidambaram
said.
The move will empower the CCI, which was hitherto struggling to
regulate anticompetitive activities related to mergers and
acquisitions (M&As) in the absence of absolute powers. Once these
amendments get Parliament nod, M&As across sectors will need to get a
clearance from the CCI.
Initially, various sectors and ministries were opposed to CCI's
jurisdiction cutting across sectors. Their argument was that some
sectors such as finance and telecom already have regulators on their
own and there could be aconflict if CCI also starts looking into them.
However, putting an end to the debate, Chidambaram said: "The CCI will
have overarching powers to judge on all anti-competitive issues
despite sectoral regulations." The competition watchdog has a mandate
to ensure that M&A deals between various companies do not lead to
monopolistic situation that affect fair competition in the
marketplace.
Among the amendments approved by the Cabinet include changing the
definition of "turnover" and "group", reducing the overall time limit
of finalisation of transaction from 210 days to 180 days, and
introduction of Section 5A.
For full report, visit www.business-standard.com
--
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CS A RENGARAJAN,, B.Com ,FCS, LLB, PGDBM
Company Secretary, Chennai
email csarengarajan@gmail.com
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