Nine advisory committees to suggest sector-wise solutions.
As the wait for the passage of key financial sector Bills on insurance, pension and microfinance gets longer in Parliament, the finance ministry has decided to initiate some reforms at the grass-roots level.
The ministry plans to set up multiple advisory groups to ponder over issues that blight the financial sector and find long-term solutions. It is likely to set up nine advisory committees by the end of this month for microfinance, pension, health insurance, life insurance, banking, institutional finance, priority sector, financial inclusion and human resource reforms.
Eminent academics from the Indian Institutes of Management, as well as subject experts from the industry, state governments and the Centre will comprise the groups.
Finance ministry officials say the idea is to reform the financial system and avoid a situation like the one in Andhra Pradesh, when the state had to introduce a law to regulate microfinance institutions accused of charging unduly high interest rates and using coercive practices to recover loans.
Each advisory committee, having 10 to 15 members, will look at ways to strengthen distribution channels and access of schemes to consumers. The groups will suggest ways to remove the existing bottlenecks in financial services.
“The idea is to be proactive. The groups, with the best brains from various reputed institutions, will help us in policy making by providing theoretical and intellectual inputs. It will be very useful,” said an official.
The groups may suggest ways to improve the penetration of the New Pension System and insurance services.
The PFRDA Bill, which seeks to grant statutory status to the pension regulator and open up the sector for foreign direct investment (FDI), and the Insurance Laws (Amendment) Bill, which proposes to raise foreign investment cap in domestic private insurance companies to 49 per cent, are currently being examined by a Parliamentary standing committee on finance.
Both Bills have been pending for several years because of stiff resistance from the Opposition, which has been questioning the rationale behind FDI in pension and raising the limit for the insurance sector. Sensing the differences on the FDI issue, the revised pension Bill sought to give powers to decide on FDI in the pension sector to the executive. However, the standing committee on finance was keen to know the specific FDI cap for the sector from the finance ministry.
For the microfinance sector, the finance ministry had recently released a draft, seeking comments. The Bill proposed to bring all microfinance institutions (MFIs) under the Reserve Bank's ambit. It proposed to empower the central bank to decide on interest rate caps. Though the interest rates charged by microfinance institutions fell after MFI practices came under criticism, the government felt the need to bring more transparency in the system.
The government has been facing criticism for not being proactive on the reforms front. Finance Minister Pranab Mukherjee had sought to allay the industry's fears on this front. He had asked India Inc a few weeks back to send him the concerns plaguing various sectors within four weeks, and promised to address them.
