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Missing numbers

Missing numbers

Some financial sector reforms are yet to be cleared by Parliament, so don't expect any immediate action.

By now, US President Barack Obama knows how difficult it is to pass a law in the Senate and the House of Representatives without the numbers. When he got his trillion-dollar health care reforms Bill passed this March, only one Republican voted for it while 39 of his own Democrats gave it the thumbs down. The Bill got by with just 219-212 votes.

On November 8, when he addresses a joint session of India's Parliament a day before it convenes for its winter session, Obama will come prepared with the knowledge that his host does not have the numbers required to push through the controversial insurance and pension reforms Bills that have been gathering dust.

The upper limit for foreign direct investment or FDI in the insurance sector has remained at 26 per cent for over a decade. The Bill proposes a limit of 49 per cent. In the business of managing pension funds, the government proposes to allow FDI for the first time, of up to 26 per cent.

"Obama's visit is more strategic in nature," says Rajesh Sud, CEO and Managing Director of Max New York Life Insurance, a joint venture between Max and New York Life Inc of the United States. The numbers are not right for the Congress-led United Progressive Alliance, or UPA, in Parliament, and Sud is not expecting any miracle from Obama's visit.

Foreign banks, though, are rejoicing after decades of restrictive regulations that governed everything from mergers and acquisitions to the number of branches a bank can open. Call it coincidence or the Obama effect, the Reserve Bank of India is expected to issue guidelines for foreign banks that will allow them to operate here through a wholly-owned subsidiary. The RBI's February 2005 road map for foreign banks had specified this; the guidelines are expected any day. Today, the Citibanks and Standard Chartered Banks of the world operate here as a branch of the parent.

Minister of Finance Pranab Mukherjee, though, is quick to de-link the imminent liberalisation from Obama's visit. At the annual meeting of the International Monetary Fund and the World Bank this month, Mukherjee said that India's financial reforms were not a result of external influence, much less an attempt to appease the US ahead of Obama's visit. "It is not linked with anybody's visit," said Mukherjee. Kalpana Morparia, CEO of JPMorgan Chase's India operations, believes that Obama's visit will result in some action on the pending issues.

A partner in one of the US-based Big Four consultants said the visit of any US president is significant as both the countries are amongst the largest economies in the world. "The visit is beyond economics," he says. Today, Citibank is the only US bank of some consequence in India, while JP Morgan, Bank of America and Goldman Sachs are not big players. Citibank India's balance-sheet size is close to Rs 100,000 crore, but JP Morgan and Bank of America's assets in India are below Rs 15,000 crore.

Critically, can Obama ask India to open up its financial sector when he is pushing for tougher regulations for banks back home following the 2008 financial meltdown? May be he will simply raise a toast to India's market-proof regulations.