Latest is the government's move not to allow more than 26 per cent foreign equity in Indian private sector insurance companies. Finance Minister had earlier announced that insurance will be open for Indian private sector companies. At that time details of foreign equity participation were not given.
Foreign equity below 26 per cent means the foreign partner cannot veto on special resolutions. According to Indian laws, a shareholder with a 26-per-cent stake can block special resolutions like changes in the company's articles or memorandum of association.
On the time-frame after which the foreign companies are likely to be allowed to participate in the sector, the Minister felt that the Indian companies would be fully responsive to any liberalization of the sector, indicating that the foreign insurers would have to cool their heels for long. This is likely to send shock waves through the host of foreign insurance companies waiting to participate in the Indian market for direct insurance.
The previous Congress Government had left the insurance sector reforms suggested by the Malhotra Committee largely unfinished. After months of dithering, the outgoing Government had hardly set into motion the formation of the interim Insurance Regulatory Authority (IRA), when it lost power.
The tasks entrusted to the IRA included the need to examine the modalities of allowing private sector entry into the insurance sector, including that of foreign companies, and work on the necessary amendments to the various laws applicable to the insurance sector to facilitate the opening up of the sector. The insurance sector reforms have been stuck ever since the interim IRA was set up in January 1996. Severe political opposition to opening up the sector has led to successive Governments being unable to progress further. The last major jolt to the process came when the United Front Government was forced to withdraw the IRA Bill, 1997 from Parliament.
The decision to vest the IRA with the licensing powers comes after the present Government had at one point considered a separate two-stage selection procedure for issuing of license to commence business. The proposal, which, if accepted, would have resulted in an extremely minimal role for the IRA in the process, envisaged the setting up of a licensing committee which would issue the final licenses. According to the plan, however, the first stage of shortlisting of applications would be done by the Government itself.
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