The markets may expect the new Finance Minister, P Chidambaram, to take the big reform steps that India’s current President and even the Prime Minister (while he temporarily held charge of the finance portfolio) did not.

But these expectations are unlikely to materialise in the coming week or even the monsoon session of Parliament starting on August 8.

The first major event this week would be the Vice-Presidential polls on Tuesday, with the monsoon session following the day after that. And the session — perhaps reflecting the behaviour of the south-west monsoon itself this time — may not rain too many economy or business-related Bills.

On the insurance front

The main reason here is the limited window of opportunity for meaningful legislative activity. The session itself is scheduled to last for a month, closing on September 7. Within that, there would be only 20 working days.

After leaving out the four Fridays — when private members’ business is what is largely taken up — the session would be effectively reduced to 16 days. Assuming no forced adjournments and disruptions, of course.

Right now, the Government has 31-odd Bills that have already been introduced and are awaiting passage in various stages.

Of these, only a handful are finance-related: The Banking Laws (Amendment) Bill, the Insurance Laws (Amendment) Bill, the Pension Fund Regulatory and Development Authority (PFRDA) Bill, and the Companies Bill.

One cannot expect much from the insurance Bill, which seeks to raise the foreign direct investment limit in the sector from 26 to 49 per cent.

The Standing Committee on Finance has rejected this proposal outright, with its report submitted last December, instead, suggesting that the capital requirements of the insurance sector be addressed through the alternate route of the domestic market.

Given its current political vulnerabilities, the Government is unlikely to push for a stance contrary to the Standing Committee’s recommendations.

In the case of the PFRDA Bill, the main opposition, Bharatiya Janata Party, has apparently agreed to its passage, provided that an FDI cap of 26 per cent (the same as in insurance) is explicitly incorporated.

The original Bill did not specify any such limit. But the main opposition to the PFRDA Bill does not come from the BJP as much as the constituents of the ruling alliance itself — notably the Trinamool Congress.

Shareholder voting rights

As regards the others, the Standing Committee on Finance has already finalised and sent its recommendations on the Companies Bill. But the Cabinet is yet to consider the amendments suggested by the panel; so it is not clear whether the Bill would get passed in the monsoon session.

The Bill that looks most likely to be taken up for passage this session is the one that aims at raising the voting rights cap for individual shareholders in private sector banks from the existing 10 to 26 per cent.

The Government had, in the original banking laws amendment Bill, sought to confer voting rights in proportion to the shareholdings without any limit. But again, in deference to the Opposition’s wishes, the Union Cabinet, in April, decided to cap shareholders’ voting rights at 26 per cent, even if their holdings exceed this level.

As for public sector banks, the Bill will pave the way for increase in voting rights of shareholders from one per cent now to 10 per cent. The amendment on voting rights may throw open interesting possibilities for bank ownership and governance. It may also result in increased interest among foreign investors in Indian banks, especially the smaller private ones.

At the same time, considering the Reserve Bank of India’s (RBI) close monitoring of changes in bank ownership, the process is likely to be calibrated and controlled. The RBI’s nod is a must for any share acquisition of five per cent and above in banks.

The other important provision in the Bill is to keep mergers and acquisitions in banks outside the purview of the Competition Commission of India.  

To sum it up, one shouldn’t expect much from the upcoming session. At best, we may see the Government picking some low-hanging fruits on the economic Bills front.

(This article was published on August 5, 2012)
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