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Cabinet reforms meet: Foreign players may get access to $12-bn pension market

The Manmohan Singh govt is ready to ram through the next batch of economic reforms, including a hike in the foreign direct investment limit for pension funds to 49 per cent and amendment in the Forward Contract (Regulation) Act.

S.P.S Pannu | October 15, 2012 | Updated 12:22 IST

The Manmohan Singh government is ready to ram through the next batch of economic reforms, including a hike in the foreign direct investment (FDI) limit for pension funds to 49 per cent and amendment in the Forward Contract (Regulation) Act for providing more powers to the Forward Markets Commission, at a Cabinet meeting scheduled for Thursday.

Both these proposals had to be shelved earlier due to the formidable opposition from the United Progressive Alliance's (UPA) erstwhile ally and Trinamool Congress chief Mamata Bannerjee.

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The other proposals on the agenda, as reported by Mail Today earlier, are increase in the FDI limit in the insurance sector to 49 per cent, the decision to operationalise infrastructure debt funds (IDFs) and the Companies Act (Amendment) Bill.

The proposal to set up a National Investment Board for the speedy clearance of mega infrastructure projects has been deferred for the time being.

According to reliable sources, an amendment to the Competition Act, and computerization of the public distribution system to check misuse of food and fuel subsidies will be taken up by the Cabinet.

A proposal for upgrading the Gaya, Kochi, Lucknow and Banaras airports has also been listed on the agenda. Last November, the Cabinet gave the goahead for allowing FDI up to 26 per cent in pension funds to take forward a key financial sector reform that has been stuck for several years.

"The government is of the view that the FDI cap in pension funds should be raised to 49 per cent to bring it on par with the insurance and banking sectors," a senior official told Mail Today.

The decision is meant to pave the way for global financial players to access India's roughly $12-billion market and expected to provide better returns on savings for the country's workforce.

Currently, pension funds of over a million employees are managed by domestic players such as IDFC, State Bank of India, Kotak Mahindra Bank, Reliance Capital and insurance major Life Insurance Corporation of India. Foreign firms have been keen to get into the growing and lucrative pension market.

However, these financial sector reforms will ultimately require the approval of Parliament, where the UPA lacks the requisite numbers. But the government is of the view that the Cabinet approvals will send across a strong signal to investors about the government's intent. The FCRA Bill seeks to provide financial autonomy to the Forward Markets Commission (FMC) by allowing the commodities market regulator to collect fees from brokers and levy fines on them in case of violation of rules like stock market regulator, the Securities and Exchange Board of India, does. The Bill provides for tougher oversight and freer entry of financial institutions and launches of new products such as options and derivatives.

The Cabinet will also consider the revised draft of the Companies Bill which proposes to lay down the fraction of their profit that companies should spend on corporate social responsibility (CSR) activities. If the Bill is cleared, it will be introduced in the Winter Session of Parliament.

The government proposes to amend the competition law as well to revise the threshold limits for companies to seek the Competition Commission of India's (CCI) approval.

The proposal to operationalise the IDFs will figure at the meeting. According to the proposal, the IDFs, to be set up as nonfinancial banking companies (NBFCs), would have to enter into tripartite agreements to which the concessionaire, the project authority and the IDFNBFC, would be parties.

Courtesy: Mail Today 

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