Cabinet note on 26% FDI in pension sector ready

Proposal likely to be introduced in Parliament during the winter session.

The finance ministry has finalised a Cabinet note to allow 26 per cent foreign investment in the pension business. The proposal is part of the redrafted Pension Fund Regulatory and Development Authority Bill, which is expected to be introduced in Parliament during the winter session.

Finance Ministry officials said the proposal would be taken up by the Cabinet once the Left parties and the United Progressive Alliance government arrived at a consensus.

"There were various options that were discussed but we have opted to follow the model for the insurance sector. We felt that there was no need to get over-ambitious," said the officials.

The parliamentary standing committee on finance, which submitted its report during the last session of Parliament had also recommended capping foreign investment at 26 per cent.

During the winter session of Parliament last year, the government had decided to promulgate an Ordinance to set up a pension fund regulator. But attempts to get a Bill replacing the Ordinance failed due to opposition from the Left.

The Bill was then referred to a standing committee. The Left parties have questioned the logic for a system of defined benefits as proposed in the new pension scheme.

The officials said the finance ministry was also of the opinion that pension fund managers should not be allowed to invest abroad, as proposed by the standing committee. The government has already tried to placate the Left by making public the draft regulations.

The government has once again sought the support of the Left to ensure smooth passage of the Bill. The Left parties have softened their stand on the matter.

The government has decided to shift all central government employees joining service from January 2004 to the new pension scheme but in the absence of a regulator and fund managers, money is being deposited in the public account.

The Centre is to match the 10 per cent contribution made by employees. Some states have also decided to put in place a similar system.