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Prime Minister Narendra Modi resorted to a rarely-used executive decree on Wednesday to implement coal and insurance reforms, displaying his resolve to revamp Asia's third-largest economy despite political opposition in parliament.
The move came after opposition parties did not allow a vote on the measures in the upper house of Parliament.
"The ordinances demonstrate the firm commitment and the determination of this government to reform," Finance Minister Arun Jaitley told reporters after a meeting of the cabinet.
"It also announces to the rest of the world including investors that this country can no longer wait even if one of the houses of parliament waits indefinitely to take up its agenda."
Under the order, foreign firms can increase their participation in insurance joint ventures from 26% to 49%, a potential lifeline for a sector starved of capital and squeezed by regulations. Shares of companies with insurance businesses such Max India and Reliance Capital rallied on the news.
Shashwat Sharma, a partner at consultant KPMG, said the move will draw up to $4 billion of new investments into the sector.
"It will bring in a lot of confidence and people waiting for it would start thinking through it," he said.
But not every foreign investor is expected to immediately start committing fresh funds as the executive order has to be approved by parliament within six weeks of the opening of the next session – scheduled for the start of February - to become a formal law.
Amitabh Chaudhry, MD & CEO of HDFC Life said that they have to wait for the fine-print of this decision before any foreign investment is bought in. "It is not clarified what will happen if any FDI or FII comes in during this period and the ordinance lapses, what will be the status of this investment. However, it clearly shows the intention of the government to get the insurance reforms rolling," he said.
Even though the insurance measure enjoys rare bipartisan support, there is a risk that it could meet the fate of the decree Modi issued in October to open up the coal industry to the private sector.
A bill to convert that executive order into a law failed to make headway in the parliament session that ended on Tuesday, forcing the federal cabinet to renew it on Wednesday.
"Will people wait for the ordinance (decree) to be converted in to a law, the answer is yes," said Abizer Diwanji, national head of financial services EY.
"If you are making substantial investments in the country, then you would certainly want to make sure that there is absolute clarity."
Here's a look at the two bills and its provisions for the insurance and coal sector
Insurance Laws (Amendment) Bill
1) The Insurance Laws (Amendment) Bill has raised the foreign investment cap in the sector from 26 per cent to 49 per cent. According to the Bill, the cap on foreign investment will include all forms of foreign direct investment (FDI), foreign institutional investment (FII) and foreign portfolio investment.
2) The revised section 45 in the Bill says no claim can be repudiated after three years of the policy being in force, even if a fraud is detected. This will mean customers who have been miss-sold a policy can get their claims passed even if discrepancies are seen in the policy or claim.
3) The minimum capital for health insurance companies will be Rs 100 crore, against the proposed Rs 50 crore. This will mean only serious companies enter this business.
4) Health insurance has been defined as contracts that provide for sickness benefits or medical, surgical or hospital expense benefits, in-patient or out-patient travel cover and personal accident cover.
5) Indian management control has been proposed. Clarity is awaited on what this will mean and whether there will be a cap on voting rights.
6) Insurers can approach the Securities Appellate Tribunal for redressal of grievances against the Irda Section 40A of the insurance Act, which relates to agent commission limits,has been omitted in the Bill. Irda will have to bring out fresh norms for agent commission and caps thereof
Coal Mines Bill
1) The Coal Mines Bill opens sector for commercial mining.
2) It will also set the ball rolling for re-allocation of 204 cancelled coal blocks through a transparent e-auction process.
3) In first phase, 42 producing and 32 about-to-produce mines will be put up for bidding for end use in power, steel & cement sectors.
4) The bidding process has two-phases — technical & financial.
5) Cap on rates will keep electricity prices in check for mines allotted to the power sector.
6) Bid price and methodology of e-auction will be tabled for Cabinet approval.
7) Sale of RfP will be completed by December 22-24.
8) Govt hopes to conclude e-auction process by March 11.
