Why FDI in insurance, pension is a win-win for UPA | Firstpost

For all the sound and fury over the ?Big Bang reforms? announcement of Thursday evening ? permitting foreign direct investment (FDI) in insurance and pension sectors upto 49 percent ? the proposal for now is merely a pie in the sky. It needs to be formalised through legislation, which is a lengthy process that won?t even begin until the winter session of Parliament.

What it does do, in the short term, however, is to keep the stock market in a buoyant mood on the expectation of sustained reforms. On Thursday, indicatively, the Sensex closed above 19,000 for the first time in a long time.?And that is what Finance Minister P Chidambaram is betting on: so much of his calculations underlying the path to restoration of ?fiscal rectitude rely on a successful disinvestment programme.

Indicatively, this year?s budget has set a disinvestment target of Rs 30,000 crore, but under certain circumstances, the government can ?mop up perhaps twice as much! The 2G spectrum auction, the base price for which was set at Rs 14,000 crore, will likely rake in twice as much if the revived market sentiment holds. In addition,?fast-tracking and expanding the disinvestment process by selling stake in SAIL, NMDC, Coal India and NTPC (in all of which government holding is in excess of 75 percent) will get Chidambaram there.

P Chidambaram wants to keep markets happy till he can mop up revenue from disinvestment. PTI

Also, Vedanta which had earlier offered the government Rs 17,000 core to buy its remain stake in Balco and Hindustan Zinc, has subsequently revised its offer to over Rs 21,600 crore, perhaps because the government has been bargaining hard. ?Additionally, by selling the holdings of the special undertaking of the UTI (SUUTI) in private sector companies like L&T, Axis Bank and ITC Ltd, the government can exceed ?its disinvestment target by a comfortable margin.

Of course, it?s not as if the UPA government has suddenly found religion and woken up to the wisdom of fiscal prudence. This revenue m0p-up effort ? and the restoration of a semblance of sanity to the fiscal deficit ?- is only aimed at ensuring that the government has plenty of ?elbow room in next year?s budget (provided it lasts until then!) to unleash yet more social welfare spending in the hope of winning back some of the political goodwill that these ?anti-people? ?reforms? have lost.

But all this rests on two considerations: the first, that the stock market remains in an upbeat mood. And that is what the succession of ?reforms? announcements from the government are aimed at achieving in the short run.

The second consideration relates to politics. Trinamool Congress chief Mamata Banerjee has indicated that she will table a no-confidence motion in Parliament and has sought the help of Opposition parties across the spectrum to bring down the UPA government. Bringing down the government will be the ultimate validation of her decision of last month to withdraw support to it, so she has signalled that she is ready to bell the cat.

But the problem for Mamata Banerjee is that although the UPA government today resembles a fragile political arrangement that has been stuck together with bubble gum and tied up with string, and perhaps deserves to be trashed just on the strength of the corruption scandals that have happened under its watch, it is an Artful Survivor. It has been very skillful in capitalising on the political polarisation that happens in a Congress-vs-BJP political framework, and still has enough ?moving parts? to play with ? in the form of the Samajwadi Party and the Bahujan Samaj Party.

Nothing is more illustrative of this than the reason that the Samajwadi Party offered in defence of its decision last month to bail out the UPA government (after Mamata Banerjee withdraw her party?s support). Although the Samajwadi Party too opposed the FDI in retail proposal, which is what finally prompted Mamata Banerjee to pull out, it said it would prop up the UPA to keep ?communal forces? (read the BJP) ?from filling the political vacuum that would be created by the government?s fall!

Over the next two months, when the elections to the Himachal Pradesh and Gujarat Assemblies, get under way, that fear ? of the rise of ?the BJP ?- will only become more pronounced. All the current political indicators say that the Congress will fare badly in Himachal, and that the BJP under Narendra Modi will return to power in Gujarat.

If that happens, the wailing among self-professed secular parties to check the BJP?s rise at the Central level will only become more pronounced ? and everyone from the Left parties to the Samajwadi Party to the Bahujan Samaj Party will be even more enthusiastic to take turns administering the kiss of life to the UPA government and keep it on life support for as long as it takes. We will likely see more inventive invocations of the UPA?s ?secular? credentials to keep the BJP at bay.

It is in that context that the ?Big Bang reform? announcement of FDI in the insurance and pension sectors must be framed. Truth to tell, FDI in insurance and retail isn?t as much of an emotive issue for ordinary folks in the way that FDI in retail is. Uma Bharati may whip up a fair bit of frenzy by threatening to set on fire the first Wal-Mart outlet that comes up, but it?s hard to visualise her targeting the FDI in insurance and pension sectors in the same dramatic way. (What will she do: burn her insurance policy?)

In any case, the BJP, for all its opposition to the proposal to raise FDI in insurance to 49 percent, has been somewhat measured in its criticism of Thursday?s announcement. BJP spokesperson Ravi Shankar Prasad said that Chidambaram?s announcements and the caveats needed to be studied closely. ?All these are important issue whose fine print needs to be examined,? he noted. Likewise, the party spokesperson was at pains to emphasise that the BJP was not opposed to enhanced FDI in insurance and pension ? provided some conditions ?to safeguard the interests of the people? were built into the legislation. He even pointedly noted that it was the BJP that had initially proposed raising FDI in insurance to 49 percent, but had yielded in the interest of evolving a political consensus to a 26 per cent cap. ?Perhaps the BJP is at pains to remedy the popular impression ? created by its opposition to FDI in retail ? that it opposes FDI in its entirety.

Yet, the UPA?s announcements of a sucession of Big Bang policy initiatives are focussed rather more on the short term. Events of the next two months, culminating in the results from the Assembly elections from the two States, will decide the fate of Thursday?s announcements ? and the larger story of the UPA government?s survival.?Everything from now until then is just sound and fury, signifying nothing.

Source: http://www.firstpost.com/politics/why-fdi-in-insurance-pension-is-a-win-win-for-upa-480131.html

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