Finance minister Pranab Mukherjee hopes to see three Bills on pensions, insurance and banking clear any opposition this year from within the ruling alliance and from parties outside the coalition. Mr Mukherjee, a measured politician, argues that movement on financial deregulation will emphasise the reformist intent of his government, which is widely being accused of policy paralysis.
The revised pensions Bill has found backing from the BJP, which has managed to extract two concessions from the draft that was put up for parliamentary scrutiny a year ago. One, the new draft explicitly caps the foreign holdings in pension funds at 26%. Two, fund managers will now be required to offer at least one assured-return scheme among their bouquet of products. Neither is a deal-breaker for shifting the country from a defined benefit pension model to a defined contribution one. The movement of the pensions Bill offers a glimmer of hope that policy is not completely held hostage.
The insurance Bill, however, must negotiate trickier ground. The Bill is designed to raise the foreign investment limit in private insurance companies to 49% from the current 26%. The government’s case is India needs a big injection of foreign capital if it wants to stop being chronically underinsured. The opposing view is that higher foreign holdings increase the scope for capital flight, particularly after an epidemic of sickness among international insurers. In this case, the BJP is yet to be convinced of the wisdom of raising the foreign holding threshold. The banking Bill that se-eks to raise the 10% cap on the voting rights of foreign investors in Indian banks is, similarly, yet to get the issue-based Opposition on board. The government then has to work on allies like the Trina-mool Congress, whose reservations about all three Bills are more ideological. Alongside, it has to seek fellow travellers for financial sector deregulation in the SP and the BSP.
Mr Mukherjee, a practising politician, is circumspect about committing to more reform in a season of extreme partisanship. His economic adviser, Kaushik Basu, a practising economist, has bolder ambitions. He sees movement on fuel price deregulation and improved delivery of subsidies this year. Mr Mukherjee is even guarded on being able to push through, before the year is out, tax reforms that need the states’ concurrence. India’s final reforms frontier lies within its states. India has changed the way it does business with the world but not how it does business at home. Labour laws offering a false sense of security and fragmented markets for bicycles and bananas and everything in between keep India from achieving its true economic potential. By concentrating his energies on financial deregulation, which does not evoke the mass hysteria of job losses or lower handouts, Mr Mukherjee is hoping to keep the reforms clock ticking.