Finance Minister P Chidambaram plans to introduce the insurance and pension bills in the Budget session of Parliament as he is optimistic of securing the opposition’s support on the contentious legislations, Bank of America Merrill Lynch said after an investor interaction it hosted with Chidambaram in Singapore.
The insurance bill will propose to raise the FDI cap in the sector to 49% from 26%, while the pension bill will open up the sector to foreign investment up to 49%.
“The FM hopes to pass the insurance bill and the pension bill in the Budget session. He mentioned that behind the noise, there were quiet negotiations with the opposition parties and support from them,” Bank of America Merrill Lynch said in a note recently.
Chidambaram, who is on a four-nation tour to woo investors, had recently promised a stable budget that will take fiscal consolidation process forward and not include any unpleasant tax measures.
The cabinet had in October last year approved the Insurance Laws (Amendment) Bill 2008 with 49% foreign investment limit in the sector, but the government did not move it in the Parliament’s winter session as it lacks the numbers to get the bill passed on its own.
Chidambaram, however, was not hopeful of getting the goods and services tax in place by April 2013, but he could get the legislation for introducing the bill passed by December this year.
The ambitious reform of the indirect tax regime that envisages one goods and services tax in place of many levies is stuck because of differences between states and the Centre over its
structure and powers of the two.
The finance minister reiterated the government’s commitment to reforms and liberalisation, but said an unstable government in 2014 could be the biggest threat to reforms, the note said. India will elect a new government sometime in May-June next year.
Bank of America Merrill Lynch said the minister also told the investors that 5.3% fiscal deficit target will be met through cost cuts and austerity measures. He also said that the five-year fiscal deficit reduction targets announced by him earlier would be met without raising taxes.
The plan envisages reduction in fiscal deficit to 3% of GDP by 2016-17.
Chidambaram pegged the current year’s growth at 5.7%, rising to around 6.7% in 2013-14 and to 8% the next year.
“The FM reiterated that the Cabinet Committee on Investments would speed up project approvals. Moreover, the PSUs have been asked to spend on projects as per targets or return surplus cash by way of special dividends,” the note said.
Chidambaram also hoped that the direct transfer of benefits will help reduce leakage in the subsidy scheme and save subsidies, citing 20 to 60% savings in pilots.