Cabinet allows FDI in insurance, pension sectors; will these big bang reforms pass the Parliament test?

The Cabinet yesterday cleared 21 proposals in what even a cheering industry agrees is a reforms rush. Crucial among those was allowing up to 49 percent Foreign Direct Investment or FDI in Indian insurance companies - up from 26 per cent previously. In the pensions sector, previously closed to outside investors, foreign groups will also be able to have a share in companies that manage pension funds. Mr Chidambaram said FDI in pension would mirror that in insurance - so if Parliament clears 49% FDI in insurance, 49% would be allowed in pension too. (Watch: Measures taken by the govt are not anti-people, says Montek Singh Ahluwalia)

The Insurance Laws (Amendment) Bill is likely to be taken up by Parliament when it meets for the Winter Session. And that test could be tough going for the Congress. A furious Mamata Banerjee has said she will press for a no-confidence motion. The government is in a minority since Ms Banerjee exited the ruling coalition over the decision to allow huge multi-brand retailers such as Wal-Mart to own 51 per cent of retail stores in the country last month.

The government is at present propped up by external support from Mulyam Singh Yadav's Samjawadi Party and Mayawati's Bahujan Samaj Party. Both have so far been noncommittal on the latest set of reforms. Mr Yadav has a stated position against FDI but has not seemed overly anxious to rock the UPA boat on the issue. Ms Mayawati has been very quiet and is expected to show her cards only on October 9.

It is the BJP which is critical to the Congress-led UPA's plans. If the main Opposition party supports the government on these two decisions, it is through - the BJP has 114 MPs in the Lok Sabha and 49 in the Rajya Sabha. Mr Chidambaram is pinning his hopes on the fact that the BJP cannot afford to be seen as anti-reforms. The party has reacted cautiously so far, saying it is waiting to read the fine-print on the Bills that the Cabinet has cleared. A parliamentary committee headed by BJP leader Yashwant Sinha had studied the proposed changes and was not in favour of raising the cap on FDI to 49% partly because it could expose the economy to global downturns. On pension, the committee said the government should specify within the Bill the cap on FDI. (Read: Who said what)

The DMK the second-largest party in the coalition after Ms Banerjee-led Trinamool Congress' withdrawal, is opposed to FDI in retail, insurance and pension. The Left has slammed the government and will vote against reforms.

Corporate India has welcomed the reforms. "It's good for the country, it's good for the GDP and growth of this country. I find it very hard to understand why we can't get a consensus," said HSBC India head.

Finance Minister P Chidambaram said yesterday that the insurance sector needs huge capital that is only possible through FDI. "The benefit of this amendment will go to the private sector insurance companies which require huge amount of capital," Mr Chidambaram said. He said state-run insurance companies will be off-limits to FDI. (Watch: What Mr Chidambaram said)

The pension and insurance bills have been proposed for nearly a decade. Most of India's 24 insurance companies have lost money in the past decade, hit by restrictions on foreign holding and by regulatory changes.

The Cabinet yesterday also cleared the 12th five-year plan, the country's economic blueprint. It will now be reviewed by the National Development Council (NDC), which consists of the PM, his Cabinet, and all chief ministers. The growth rate has been scaled down to 8.2 per cent from 9 per cent envisaged earlier. (Read)

A new Companies Bill was also adopted, which would introduce concepts like corporate social responsibility, class action suits and a fixed term for independent directors to make corporate governance more transparent to share-holders. (See reform report card)