The Hindu Business Line : CEA office preparing Govt's brief on financial sector reforms

THE office of the Chief Economic Advisor (CEA) in the Ministry of Finance has become the latest epicentre for pushing the next phase of financial sector reforms.

The CEA, Dr Ashok Lahiri, and his staff are busy preparing a comprehensive document on which the Government would argue its case during the next round of talks between the United Progressive Alliance (UPA) and the Left parties.

The CEA's brief is to prepare a well-argued paper on the financial sector reforms required in the banking, insurance, and pension sector to achieve a sustained 8 per cent GDP growth.

"The various divisions in the Finance Ministry handling banking, insurance, and pension reforms have sent their views to the CEA's office which is preparing a consolidated paper that the Government would place at the co-ordination committee meeting," said a senior Finance Ministry official.

Dr Lahiri, however, was not available for comment. His office said that since the policies were yet to take concrete shape, the CEA would not be willing to comment on the issues.

Financial sector reforms did not figure in the UPA-Left meeting last Sunday.

"We did not discuss financial sector reforms since we have asked the Government to come to us with focussed sector-wise approach. These will be taken up later," Mr Abani Roy, MP, Revolutionary Socialist Party (RSP), who attended the meeting, told Business Line.

The UPA Government has been hesitant in proceeding with a large number of initiatives on financial sector reforms on fears of running foul of the Left parties, which provide outside support to the Government.

Among the moves that the Left parties have found unpalatable are mergers of public sector banks, allowing higher level of FDI in banks including PSU banks, raising the FDI limit in insurance to 49 per cent from 26 per cent, and allowing private pension fund managers to handle savings of individuals for the purpose of old-age income security.

In its first Budget (the interim Budget for 2004-05), the UPA Government had announced plans to increase FDI in insurance to 49 per cent.

However, it has not yet been able to give concrete shape to the proposal due to Left's known opposition to any hike in foreign capital allowed for the sector.

The Government has also seen vehement opposition to the fledgling pension reforms proposal, as a result of which an earlier Bill to set up a pension regulatory authority was allowed to lapse.

A Parliamentary Standing Committee that is looking into the entire pension reforms agenda is expected to finalise its views shortly.

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