PC to woo Oppn to back FDI in insurance

The sector needs massive infusion of capital, he says

Finance Minister P Chidambaram on Saturday said he would convince opposition parties, including the BJP, to make a smooth passage for the bill that proposes to hike the limit of foreign direct investment (FDI) in insurance sector from 26 to 49 per cent.

Chidambaram said there have been broad agreements over most of the recommendations of the standing committee on finance. “The difference is only on the FDI cap; the standing committee is keen to retain the 26 per cent while the government wants it to be raised to 49 per cent,” he said.

Interacting with media in Mumbai, after a series of meetings with financial regulators and investors, he stressed that insurance sector needs huge amount of money. “If the FDI limit is kept at 26 per cent, no additional funds are going to flow in,” he said.

Most insurance companies promoted by public sector banks are in need of massive capital infusion. “When the banks themselves are facing fund crunch, how can you expect them to pump in funds,” he asked.

He said raising the FDI limit to 49 per cent will bring in foreign funds which will benefit the domestic insurance industry. All the insurance companies – both life and general – and the sector regulator, IRDA, have backed the 49 per cent FDI proposal since the insurance business is massively capital intensive that even after hiking the FDI cap, the remaining 51 per cent has to be raised within the country, he said.

Over the next few days, Chidambaram said, he will discuss the issue with other political parties. “I am quite confident of convincing them to support the proposal,” he said.
With the passing of the Insurance Bill, the Pension Fund Bill will also have a smooth sailing. On inflation, Chidambaram admitted that some of the measures taken by the government, like increasing the diesel prices, would make the inflation go up for some days but expressed confidence that inflation would come down in the long run, beyond six to eight  weeks.

On the Nifty flash crash issue, he said he had been assured that “there is no systemic risk.” In a lighter vein, he added: “I don't understand all these algo tradings. If you have, I congratulate you.”

Chidambaram held a meeting with the RBI governor in the morning. He also met the board members of Sebi, Association of Mutual Fund Investors and FIIs during his first visit to Mumbai as the finance minister in the UPA-2 government.