News APP

NewsApp (Free)

Read news as it happens
Download NewsApp

Available on  gplay

This article was first published 18 years ago
Rediff.com  » Business » Financial reforms may take off with Left's return

Financial reforms may take off with Left's return

By BS Bureaus in New Delhi
October 14, 2005 10:21 IST
Get Rediff News in your Inbox:

The government hopes to push through some financial sector reforms after the return of the Left parties to the UPA coordination committee. This hope emanates from a decision on Thursday by the Left to rejoin the committee.

The government intends to discuss the passage of the Pension Fund Regulatory and Development Authority Bill, which the Left parties are opposed to. While issues like issuing the draft rules before the Bill is presented in Parliament have been addressed, the proposal to allow foreign participation in fund management has not yet been cleared.

This is because the Left says that there is evidence of gross mismanagement of pension funds in the US, and that inviting foreign direct investment is a perfect recipe for replicating this in India.

The government will need the Left's support for the proposed amendments to the Banking Regulation Act, which include linking of voting rights in private banks to the levels of stakes held in them. At present, voting rights are capped at 10 per cent irrespective of the stakes held by foreign investors in a private Indian bank.

The Left is also opposed to giving a free hand to foreign players in banking. The finance ministry is, however, arguing that the Reserve Bank of India will have powers to regulate the entry of foreign banks.

This has cut no ice with the Left parties which feel that neither does raising of the equity cap ensure higher FDI inflows, nor does higher FDI inflow necessarily imply infusion of technology and management practices that are beneficial to the economy and the people.

"What is more, it can curb rather than enhance competitiveness, especially when a regulatory framework meant to ensure diversified ownership is diluted to pave the way for foreign banks acquiring private Indian banks within three to four years through creeping acquisitions," Left parties say.

The government has also been pushing for voluntary consolidation by nationalised banks, a move opposed by the Left on the grounds that it will result in a loss of jobs. The finance ministry is, however, of the opinion that Indian banks need to have a larger balance sheet if they are to face competition from international players.

Besides, higher capital adequacy requirements in the wake of the Basel II norms mean that the 27 public sector banks will require over Rs 20,000 crore (Rs 200 billion) of additional capital till 2009-10. This is according to a draft note prepared by the government around two months ago. But the note has been of little use because of the Left's boycott of the UPA coordination committee meetings.

The note has also underlined the need for raising the foreign investment limit for insurance from the present 26 per cent to 49 per cent. In his Budget speech in July 2004, the finance minister had proposed amendments to the Insurance Act, 1939, but could not make much headway on this because the proposal was opposed by the Left parties.

Officials, however, said the government might not push for an increase in the sectoral foreign investment cap immediately and was likely to first seek the Left's support for banking and pension reforms.

Get Rediff News in your Inbox:
BS Bureaus in New Delhi
Source: source
 

Moneywiz Live!