At a time when the government is trying its best to boost sentiments among investors and create the right business environment, Raghuram Rajan, chief economic adviser at the finance ministry, pitched for early passage of the insurance bill, which seeks to increase the foreign direct investment level to 49% from the current 26%.
Rajan on Tuesday said that the passage of the bill would signify that the country’s reform process is continuing.
“We have waited a long time for this bill to be passed and the sooner it is passed the better it would be... we are all aware of some of the constraints, but in my sense there are very few rationales against this bill,” Rajan told reporters.
Rajan also added that passing of the insurance bill would help in addressing the widening current account deficit (CAD) besides expanding the penetration of insurance in the country.
“At the time we are running a CAD, having financing capital come in into safer forms that is into long term investment like FDI would be also useful for financing the CAD,” he said.
Rajan said the two major finance bills — insurance and goods and services tax (GST) — should be taken up on an urgent basis.
“If I get assurance on those two bills, it would create a much stronger sentiment that things are going in right direction,” he said.
Insurance companies have brought in capital to the tune of over Rs. 32,000 crore since 2000, of which Rs. 21,000 crore has been invested by Indian promoters. As per Insurance Regulator and Development Authority (IRDA), the sector would require an additional Rs. 50,000 crore in the next five years.
“Those R50,000 crore are not going to come easily from Indian capital markets. If FDI goes up to 49%, foreign insurance companies will bring more funds, more technological capabilities,” Rajan said.
He said while the economy was beginning to look up, there was no scope to be complacent.
“We are not out of the woods yet and there are some worries... like auto sales are not doing well, we cannot become complacent,” he said.