President Patil’s speech hints strongly at rapid reforms
04 Jun 2009
President Pratibha Patil's customary address to the joint session of parliament underlined the government's commitment to continue financial sector reforms by easing foreign investment policy, recapitalising state-owned banks and establishing a regulator for the pension sector.
"These (foreign capital) flows, especially foreign direct investment, need to be encouraged through appropriate policy regime," Patil told the legislators. She also underlined the need for augmenting resources of the banking and the insurance sectors "to permit them to serve the needs of society better".
The earlier UPA government could not pursue insurance sector reforms, which include raising the foreign direct investment cap in the sector from 26 per cent to 49 per cent, because of stiff resistance from the Left parties. The bill to amend the Insurance Regulatory and Development Authority Act to this effect is pending in the Rajya Sabha.
"My government will recapitalise the public banks to strengthen their financial position and also bring legislation to establish a regulator for the pension sector," the President said.
The pension fund regulatory and development authority bill needs to be re-introduced in Parliament as it lapsed with the termination of the 14th Lok Sabha. The Bill was originally tabled way back in 2005 to replace the ordinance promulgated in 2004 for setting up the regulator.
Meanwhile, India's pensions regulator said the new national pension plan is likely to grow slowly and attract only a fraction of eligible participants.
Dhirendra Swarup, chairman of the Pension Fund Regulatory and Development Authority, said he expects the new pension system, unveiled on 1 May, to reach only about 20 million to 25 million people in the first four to five years out of an estimated 400 million eligible participants in India.
The voluntary plan is open to anyone in India who works in the unorganised sector, which is effectively companies with fewer than 20 employees, and can afford to invest Rs6,000 a year in pension savings.
The plan, which until last month was restricted only to members of India's civil service, had created a large amount of interest among global pension funds. But the anticipated slow take-up of the plan, combined with very low management fees, may not be enough to entice many foreign firms to enter India to manage pensions.
"Foreign fund managers have to do their math and see whether it is viable for them to come here or not," Mr. Swarup said. "I have to take care of the participants and that is all about low cost."
He said he has told domestic fund managers that they are unlikely to make money managing pensions in the first five to seven years.