PM pegs for 49% FDI in insurance

Hannover Fair

Inviting investment to help meet India's infrastructure and energy needs, Prime Minister Manmohan Singh has said his government intended to raise the cap on foreign investment in insurance to 49 per cent and give foreign banks a "greater role" step by step.

He acknowledged that the Left parties, extending crucial support to the ruling UPA, "limit" his government's options in the short term and it takes "a lot of time to convince our coalition partners".

"We will enable a greater role of foreign banks, step by step," Singh said in an interview to German newspaper "Die Handelsblatt" ahead of his three-day visit to Germany which began yesterday.

Noting that foreign insurance companies are now permitted to hold 26 per cent in Indian companies, the prime minister said, "We intend to increase this to 49 per cent." He, however, said it would require consensus within the ruling coalition "and this is not in sight at present".

In the long term, liberalisation of the banking and insurance systems would continue, said Singh. On allowing foreign investment in retail, the prime minister said his government had "begun a cautious opening in this area. We will learn from this experience... There is something such as the fear of the unknown. But with time, we should be able to enable greater presence of foreign firms in this sector as well."

The prime minister said small traders had "great influence on all parties in our country". Singh, whose government has been facing repeated attacks from the Left over reforms in certain sectors, said the UPA had "differences" with the Communists on the pace of liberalisation, "but even the Communists do not question the general direction."

He said the Left parties were "more cautious than I would like" but added that "they were learning fast". In this context, Singh cited the case of West Bengal, which is ruled by "a very progressive Communist government, which is doing everything in order to attract investors, especially from abroad. And they are successful in this."

The prime minister said, "We need huge investments if we are to remove the infrastructure bottlenecks and at the same time overcome the great challenges in sectors such as energy and water."

He said foreign companies can play an important role here. Singh, however, noted that a lot was happening already and said regulators had been established in all important areas. "Our highway system is growing, ports are being constructed and airports modernised, now the railway network is also being modernased," he said, adding, "As we keep up this momentum, the country will soon look different."

The economist prime minister said the investment rate in the country had increased to 31 per cent which has made it possible for India to achieve eight per cent economic growth.

"The investment rate will soon grow to 35 or 36 per cent," he said, adding as a result the country is headed for a growth rate of 10 per cent.

The country needs such growth to be able to create sufficient number of jobs and generate resources for investing in infrastructure, health, education and protection of the environment, Singh said.

On improving framework conditions for participation of the private sector in infrastructure, he said, "We need a good regulatory framework and we are creating this. We have established regulators in all important sectors, from roads to petroleum."

Citing the case of telecom where the regulator has been functioning for some years, he said this sector had seen explosive growth. "We are using this model now in the electricity sector as well."

To a question about India becoming the "second factory for the world" after China, Singh said the conditions in this sector are improving and Indian manufacturing companies have become efficient and globally competitive in many areas.

"If the world trade system does not become more protectionist, our industry will continue to grow rapidly."

Singh said the world trade system continues to damage emerging countries, pointing out that agricultural protectionism, especially in the EU and the US, deprives India of export opportunities.

"But we are realistic. We know that developing countries cannot shape the world trade system freely in accordance with their needs," singh said, adding india should therefore use all available opportunities.

Referring to the Doha round of WTO talks, he said it should become a real development round as promised. "This is a litmus test of whether old protectionism will raise its head. This will hinder our progress. But this will also adversely affect the rest of the world."