The Centre, in the Budget, set the ball rolling for an increase in the foreign direct investment limit in the insurance sector to 49 per cent from 26 per cent. In an interview to Business Line, Finance Secretary Arvind Mayaram said there will be no rider to the FDI cap hike and that management and control will anyway remain with the India partner.

On the overall economic situation, he said the Finance Ministry is confident of keeping the fiscal deficit within the Budget target of 4.1 per cent. The confidence stems from the hope that the political unrest in Iraq will not have a long-term impact on crude oil prices, and that the growth in other sectors will mitigate the impact of rain shortfall on the farm front.

Edited-excerpts from the interview:

On (FDI) in insurance, the key issue is: will the revised limit for foreign investors come with voting rights capped at 26 per cent? Will there be some riders in the proposal?

The Budget says that 49 per cent FDI is subject to full Indian management and control. This means that the management and control will be fully in the hands of the Indian entity. Under which conditions do you see the riders? I am explaining to you that it is full Indian management and control. The FDI policy defines ‘control’. That is the definition that will be applicable. Composite will be a total of 49 per cent, whatever the composition. However, SEBI regulations do not allow FII beyond 24 per cent.

After the last Budget, a committee was set up under your chairmanship to rationalise the definition of FDI and FII (now clubbed in Foreign Portfolio Investor or FPI). Now that the committee has submitted its report, what next?

The report has been accepted by the Government. Now, the regulators have to notify that definition. When the RBI does the accounting for FDI/FII flows and when the reporting is done to IMF (all countries do for statistical purposes), then the definition will describe how the flows are reported.

Considering the latest rainfall data and reservoir situation, the apprehension of a drought is rising. Do you think this can impact the fiscal consolidation effort? How is the Government getting ready to face the situation?

The Budget can be divided into five parts, starting with macro economic — where fiscal deficit is one of the components. I do not think that the entire focus of the Budget is on fiscal deficit. In fact, it focuses on the fact that we need to go forward on fiscal consolidation.

On the impact of rain shortfall on agriculture production, we feel that it may be marginal. The rainfall averages have improved in July for the whole country. But if there is a slight impact on agriculture, we should see that being compensated by other sectors.

The Budget, itself, is giving huge impetus to growth especially if you look at the manufacturing sector — MSMEs and infrastructure. There will be a bit of balancing, so we should see growth.

But rural demand will be impacted which, in turn, can affect the industry and have implications for tax collections…

I do not think that the impact will be that severe. There is no evidence to that.

What about crude oil?

Iraq is a matter of worry, there is no doubt about that. The Finance Minister has also mentioned about that.

But, as we see now, during the last two-three days crude prices have started falling. There is no projection as yet that there is going to be volatility in the oil market. So, to that extent we feel confident that our projections will hold.

The Budget talks about bridging the regulatory gap under the Prize Chits and Money Circulation Scheme (Banning) Act. But what about the Securities Laws (Amendment) Bill; the Ordinance issued in lieu of the Bill lapses on July 18?

The Securities Laws (Amendment) Bill has to be introduced in the current session.

There are various suggestions, we are looking at them now.

(This article was published on July 13, 2014)

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