UPA faces hurdles in insurance sector FDI hike as well

Close on the retail FDI fiasco, the UPA government is facing another setback with a parliamentary standing committee rejecting the proposal to allow foreign direct investment of up to 49 per cent in insurance, against the 26 per cent FDI currently allowed in the sector.

The hike in insurance sector FDI was another key reform contemplated in the financial sector by the UPA government in order to attract foreign investors into the country.

Although the parliament panel did not proscribe an increase in FDI in insurance sector it said under the present global economic scenario, any increase in FDI in the sector will not benefit Indian companies.

The government is likely to accept the recommendations of the standing committee on finance, which also suggested an integrated modern banking law for India, instead of bringing piecemeal legislation.

The Committee, which adopted its report on Insurance Laws (Amendment) Bill, 2008, also reminded the government of its promise to Parliament that the present cap of 26 per cent will not be breached in the near future.

The standing committee also wanted the government to redraft the statement of objectives of the Bill as it gave a "misleading" impression that the hike in insurance sector FDI was decided on the basis of the recommendations of an expert committee, which is not the fact.

The minimum capital requirement should also be raised to Rs100 crore from the proposed Rs50 crore, the committee said in its report.