Keeping reforms on the backburner will seriously affect growth

Crucial financial sector reforms are again stuck, despite finance minister Pranab Mukherjee’s appealing to political parties to help pass the legislations in this regard. Parliament’s standing committee on finance has rejected a clause in the insurance Bill to raise the foreign direct investment (FDI) cap in private insurance from the existing 26 per cent to 49 per cent. The panel also turned down a key clause in the banking Bill, to raise the cap on voting rights of a single shareholder in government-run banks to 10 per cent from the existing one per cent, and in other banks from the existing 10 per cent to a level proportionate to the stake. The committee also refused to accept the government’s proposal to bring down the minimum paid-up capital in health insurance to ` 50 crore from the current ` 100 crore. It recommended retaining the existing norms. It also rejected the proposal to allow unregistered foreign entities to operate in special economic zones on grounds that it will place domestic capital at the risk of being taken out of the country and will be biased against Indian insurers. Though the government is not bound to accept the recommendations, it needs crucial numbers of opposition parties to pass these Bills. Earlier, on the pension reforms bill, the standing committee had declined to accept the government’s desire to keep the FDI component out of the purview of legislation.