India Moves Bill Favoring FDI in Pension Funds for First Time

September 4, 2013 Leave a comment

India Moves Bill Favoring FDI in Pension Funds for First Time

India’s Finance Minister Palaniappan Chidambaram moved a bill allowing overseas investment in the country’s pension funds for the first time, as the government tries to revive economic growth and stem the rupee’s slide. He introduced an amendment in parliament today recommending 26 percent ownership by foreign companies in local businesses selling pensions. The threshold for foreign direct investment in pensions will be kept in line with the cap for insurance, which was opened to overseas companies in 2000. The legislation needs the approval of the lower and upper houses.Prime Minister Manmohan Singh is pushing for the changes after winning parliamentary backing last week for two key bills appealing to India’s poor voters as he seeks to return his party to power in elections next year. His second term has been marred by graft scandals, the weakest growth in a decade and capital outflows that contributed to the rupee’s 19 percent plunge against the dollar this year.

“This is a token reform aimed at investors after passing two very populist policies,” said P. Phani Sekhar, a fund manager at Mumbai-based Angel Broking Ltd. “It is coming too late in the day to restore any confidence in the reformist credentials of this government.”

The measure is unlikely to reverse any of India’s economic woes because it will take foreign companies at least six months to strike any deals with local partners as they navigate rules and regulations, Sekhar said.

The pension bill will also give statutory power to the country’s pension regulator, which has been functioning as an interim body for a decade without parliamentary approval. The government is aiming to win support from the opposition for the legislation by accepting some of their suggestions.

Allowing foreign firms to invest in pension funds will bring in new practices, products and higher operating margins, according to Vishal Narnolia, a Mumbai-based analyst at SMC Global Securities Ltd.

The government is also negotiating with opposition parties to raise the FDI cap in insurance to 49 percent from the current 26 percent. That bill is pending in parliament.

To contact the reporters on this story: Bibhudatta Pradhan in New Delhi at bpradhan@bloomberg.net; Andrew MacAskill in New Delhi at amacaskill@bloomberg.net

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