The UPA government is a minority in both Lok Sabha and Rajya Sabha. With some outside support and some parties abstaining, the FDI bills may get passed in the Lok Sabha, however, approval in the Rajya Sabha will be challenging
Unlike foreign direct investment (FDI) in multi-brand retail and civil aviation, the second round of reforms announced by the Indian government, would prove to be a real litmus test of the United Progressive Alliance (UPA).
“These (second round of) reforms need parliamentary approval, and therein lies the challenge as many parties are opposed to FDI in insurance and pension sectors, though the Companies bill should be able to sail through. The ruling government currently is a minority in both the Lower and Upper House, with a relatively stronger hold in the Lower House,” said Nomura Financial Advisory and Securities (India) Pvt Ltd, in a research note.
According to the brokerage, with some outside support and some parties abstaining, the FDI bills may get passed in the Lok Sabha, however, approval in the Rajya Sabha will be challenging. “As such, implementation risks exist and today’s FDI measures are the real litmus test of the government’'s ability to garner support when the parliament session commences next month,” it added.
Last week the UPA government announced a hike in FDI in the insurance sector to 49% from 26%, allowed FDI in pension sector with a ceiling of 26% and approved amendment in Companies Bill, 2011, Forward Contracts Regulation Act (Amendment) Bill or FCR(A) Bill and in the Competition Act, 2002.
Among the main reforms announced, the hike in the insurance cap will infuse capital into the insurance industry and bring in expertise/innovation from foreign players. Pension reforms or Pension Fund Regulatory and Development Authority (PFRDA) Bill will help set up a statutory body for the pension sector. The new system can provide social security to the unorganized sector, reduce the government’s future liabilities by bringing more private participation and increase investment in equity markets, especially long-term investments such as in infrastructure.
The Companies Bill will help create a simple and more up-to-date law to govern corporates in India and avoid corporate scams, ease setting up of new companies, make corporate social responsibility compulsory, among others items. The FCRA Bill will empower the commodity market regulator.