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The Big Rajya Sabha Debate of 17th March 2021

Foreign Direct Investment is a type of investment which is made by a firm or company in one country into a business or company in another country.

On 1st February 2021, in the first paperless Union Budget session since independence, the government passed a proposal in the Parliament to increase the Foreign Direct Investment (FDI) in the insurance sector from 49% to 74%. This proposal is passed to attract more overseas capital inflows into the insurance sector to help the latter improve the insurance penetration in the country.

Finance Minister Nirmala Sitharaman mentioned that under the new structure majority of directors on the board will be Indian Residents. She also mentioned that the key management levels will also consist of the same. Minimum of 50% directors will be independent. The Finance Minister also mentioned that a specified percentage of profits will be retained as general reserve.

“I propose to amend the Insurance Act, 1938 to increase the permissible FDI limit from 49 percent to 74 percent in insurance companies and allow foreign ownership and control with safeguards,” – Nirmala Sitharaman (while presenting the budget.)

On 17th March 2021, the Rajya Sabha passed the Insurance Amendment Bill 2021 which allows the increase of FDI in the insurance sector from 49 percent to 74 percent. However, there has been a lot of criticism and debate going on over this decision of the Rajya Sabha to pass the bill.

The most prominent clause that the Opposition parties have used is – “control and ownership by foreign investors”. Members of the Oppositions parties such as Mallikarjun Kharge (Leader of the Opposition of the Rajya Sabha), Anand Sharma (Senior Congress Leader), Tiruchi Siva (Member of DMK MP) and many other members have raised various questions regarding this decision of the Rajya Sabha.

However, it was clearly evident that it was difficult for the Finance Minister Nirmala Sitharaman to answer these queries.

Mallikarjun Kharge, said that this is for the third time that the Insurance Act 1938 is being amended under the BJP. The Insurance Act was first amended during the tenure of Atal Bihari Vajpayee, when FDI in the insurance sector was allowed up to 26 percent. In 2015, during Narendra Modi’s first 5 years tenure, the FDI was allowed up to 49 percent and now the FDI is being allowed for up to 74 percent.

Kharge feels that this will put the people of the country in trouble.

There have been claims by certain members of the other parties that the Opposition has not given a motion to refer the bill to a selected committee under the Rules 71 and 72.

Anand Sharma had opened the debate by asking for a justification and intention of this bill. He said that the people of the country trust the insurance companies with their money and he feels this bill is breaking that trust of the former. He accused the government with the claim that they have brought the bill up with urgency in order to divert attention from the high fiscal deficit.

He also accused the government of violating the assurance that “the Indian ownership and control will remain”, which was given by the latter during the 2015 Insurance Act amendment.

“We are not opposed to the policy of disinvestment, but is it disinvestment or leapfrogging towards privatisation and embarking on grand clearance sale of national assets built assiduously over the years.” – Mr. Sharma said during the session

He also pointed out that the big insurance firms are not in a shortage of capital presently and that the bill deviated from the government’s recent motto of – “Atmanirbhar Bharat.”

Tiruchi Siva also pointed out that even presently the insurance companies are unable to get FDI of up to 49 percent and he saw no point in raising the limit to 74 percent.

Nirmala Sitharaman replied to the debate that the policy will not allow the holder’s money to leave from Indian shores and will be invested in India only.

She made a point that the increase in FDI will lead to increase in the competition amongst the firms and thus the holders might get better premiums.

One of the most important things that was pointed out by the members was that what would happen and how the situation will be dealt in case a foreign company (not governed by Indian rules) goes into bankruptcy, which can lead to sinking of the savings of the people. To this the finance minister’s reply was –

“All the firms will have to maintain reserves to meet the policy of insurance claims. So the citizens’ claims will be protected.”

Another thing that she pointed out was that – “No insurer shall directly or indirectly invest outside of India the funds of Indian Policy holders”. This point is mentioned in the Section 27 (e) of the Insurance Amendment Bill.

However, there was no obvious reply regarding why the government brought this bill up in emergency which has led to a lot of skepticism amongst the members of the opposition parties in the Rajya Sabha.

By : Krishna Saraogi

Literary Sources – EconomicTimes, The Hindu