The BJP has come up with four safeguards to prevent foreign partners from taking functional control of joint ventures in insurance, before the party consented in the face of Prime Minister A B Vajpayee's determination.
Talking of the "dangers" of foreign companies controlling the management of joint ventures, the party had said in a three-page letter that whatever the percentage of foreign stake, these four safeguards should be put in place.
Vajpayee is yet to respond to the issues raised by the party.
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The letter, which Thakre handed to Vajpayee on Sunday, points to the experience in telecom and holds that foreign companies are confident they can easily manipulate the Indian system and control the insurance companies even with a small holding.
The party had suggested that the single largest shareholding should remain with the Indian promoter, the day-to-day management should be with the Indian majority partner and the foreign holding - direct and indirect _ should not exceed the ceiling laid down by law. Any circumvention of these should lead to either cancellation of the licence or a government takeover, the letter suggests.
The letter says foreign equity participation, combined or individual, should not exceed 24 per cent. A 26 per cent stake would entitle the foreign firm to effective participation in the board. This 26 per cent strength could also be collective.
Thus even the proposed scaling down of foreign equity participation to 26 per cent for both foreign direct investment and foreign institutional investments or external commercial borrowings, is a dangerous proposal, the letter says. It is better to start with a 20 per cent collective foreign equity, the letter argues.
Investment by non-resident Indians was technically as good as foreign investment, the party has maintained. Special concessions may be given only if it is strictly non-repatriable investment. Otherwise, it should be clubbed within the 24 per cent foreign equity participation, the letter says.
To safeguard against flight of capital, the party has suggested that the capital be repatriated after 10 years and dividend only after five years. There is considerable outflow of foreign exchange due to Indian insurance companies taking reinsurance overseas.
Considering that the foreign investor will be a minority shareholder in the Indian company, he may like to push the reinsurance business into the hands of his overseas owners. In order to ensure that there is a saving in foreign exchange, the stipulation should be made that reinsurance should be done substantially by the local entity.
Uniform investment norms should be brought for the whole industry including the nationalised companies so that the private firms do not neglect the non-profitable social sector.
Blaming the government for having played into the hands of the foreign banks by insisting that they operate only from large cities, the party suggested that the branch spread should be equal among class A, B, and C, cities and towns. The party also wants a clear regulation for the manner of infrastructure investment. In conclusion, the letter says, "Under the World Trade Organisation rules, a decision taken with regard to foreign investment cannot be reversed. Therefore, it is safe to go step by step."