Isn’t It About Time That India Realise That Overly Tight Regulation Will Not Do Their Economy Any Good? 
India's government will try to win agreement from coalition allies to ease restrictions on foreign investments in insurance, banking and pensions in its final year in office, Finance Minister Palaniappan Chidambaram said.
“Financial sector reform is our unfinished agenda,” Chidambaram said in an interview. “We failed to convince our partners that sectors which are closed or partly closed be opened for domestic private and foreign investors.”
The four communist parties that support Prime Minister Manmohan Singh's United Progressive Alliance have blocked plans to increase foreign ownership of insurers, now restricted to 26 percent, and remove a 10 percent cap on the voting rights of investors in local non-state banks such as HDFC Bank India's pension business is not open to foreign investors.
Financial reforms, including development of a corporate bond market, pensions and insurance will spur investment and add as much as 1.5 percentage points to India's economic growth, according Lehman Brothers. Eighty percent of the country's 1.1 billion people have no insurance cover and 88 percent of the workforce doesn't contribute to pension schemes, according to Lehman Brothers.
India's $912 billion economy, Asia's third-largest, has expanded at a record average pace of 8.7 percent each year since 2003. Singh's government, which is entering its fifth year in office this month, wants to accelerate the rate of growth to as much as 10 percent by 2012 to create new jobs and reduce poverty.
Financial Muscle
That will require greater financial muscle in banks to help fund local companies expand capacity and buy assets abroad. The combined assets of all Indian banks is less than the Industrial & Commercial Bank of China, China's biggest lender.
Singh's trade and investment panel recommended last month that India, which has over $300 billion of foreign exchange, the world's sixth-largest, must consider using part of the money to create a fund that will help companies buy assets abroad.
“The only argument in favour of a sovereign wealth fund is that since we have huge reserves that yield modest returns, you could use part of that reserve to enhance your return,” Chidambaram said. “There are great risks in that strategy - how are you going to manage it? How are you going to be accountable to it? I don't think it will come through anytime quickly.”
That means India needs more foreign investment to increase the size of its financial services industry.
Insurance Companies
India in 2000 opened up its insurance industry to overseas investment by dismantling the 44-year monopoly of state-owned Life Insurance of India and its non-life counterparts.
Though their stake in Indian insurers is limited, companies including New York Life Insurance and Prudential have entered the market, which has since more than doubled to $22 billion in annual premiums.
Singh's coalition government hasn't succeeded in implementing its promise to raise the foreign ownership limit in insurance companies to 49 percent as the bill does not have majority support in parliament.
Small private Indian banks are strapped for capital and unable to find investors because of the cap on voting rights.
India has been seeking to attract overseas investment to the nation's 31 non-state lenders, many of which are constrained by capital shortages and limited geographical reach, and need funds to compete with bigger rivals.
Foreign banks have cited the cap on voting rights as a disincentive to investment. Private banks typically have about 200 branches and are attractive to overseas banks seeking to tap rising demand for personal loans, mortgages and credit cards.
Indian now allows foreign banks controlling stakes only in private banks deemed to be weak and in need of capital, a rule it will start loosening in 2009.
“If the legislations that underpin financial sector reforms are passed within a year, then that would be satisfying,” Chidambaram said.
Is It Too Late For India To Implement The New Regulations? Will Their Banks Ever Catch Up With Rivals From China?
India's government will try to win agreement from coalition allies to ease restrictions on foreign investments in insurance, banking and pensions in its final year in office, Finance Minister Palaniappan Chidambaram said.
“Financial sector reform is our unfinished agenda,” Chidambaram said in an interview. “We failed to convince our partners that sectors which are closed or partly closed be opened for domestic private and foreign investors.”
The four communist parties that support Prime Minister Manmohan Singh's United Progressive Alliance have blocked plans to increase foreign ownership of insurers, now restricted to 26 percent, and remove a 10 percent cap on the voting rights of investors in local non-state banks such as HDFC Bank India's pension business is not open to foreign investors.
Financial reforms, including development of a corporate bond market, pensions and insurance will spur investment and add as much as 1.5 percentage points to India's economic growth, according Lehman Brothers. Eighty percent of the country's 1.1 billion people have no insurance cover and 88 percent of the workforce doesn't contribute to pension schemes, according to Lehman Brothers.
India's $912 billion economy, Asia's third-largest, has expanded at a record average pace of 8.7 percent each year since 2003. Singh's government, which is entering its fifth year in office this month, wants to accelerate the rate of growth to as much as 10 percent by 2012 to create new jobs and reduce poverty.
Financial Muscle
That will require greater financial muscle in banks to help fund local companies expand capacity and buy assets abroad. The combined assets of all Indian banks is less than the Industrial & Commercial Bank of China, China's biggest lender.
Singh's trade and investment panel recommended last month that India, which has over $300 billion of foreign exchange, the world's sixth-largest, must consider using part of the money to create a fund that will help companies buy assets abroad.
“The only argument in favour of a sovereign wealth fund is that since we have huge reserves that yield modest returns, you could use part of that reserve to enhance your return,” Chidambaram said. “There are great risks in that strategy - how are you going to manage it? How are you going to be accountable to it? I don't think it will come through anytime quickly.”
That means India needs more foreign investment to increase the size of its financial services industry.
Insurance Companies
India in 2000 opened up its insurance industry to overseas investment by dismantling the 44-year monopoly of state-owned Life Insurance of India and its non-life counterparts.
Though their stake in Indian insurers is limited, companies including New York Life Insurance and Prudential have entered the market, which has since more than doubled to $22 billion in annual premiums.
Singh's coalition government hasn't succeeded in implementing its promise to raise the foreign ownership limit in insurance companies to 49 percent as the bill does not have majority support in parliament.
Small private Indian banks are strapped for capital and unable to find investors because of the cap on voting rights.
India has been seeking to attract overseas investment to the nation's 31 non-state lenders, many of which are constrained by capital shortages and limited geographical reach, and need funds to compete with bigger rivals.
Foreign banks have cited the cap on voting rights as a disincentive to investment. Private banks typically have about 200 branches and are attractive to overseas banks seeking to tap rising demand for personal loans, mortgages and credit cards.
Indian now allows foreign banks controlling stakes only in private banks deemed to be weak and in need of capital, a rule it will start loosening in 2009.
“If the legislations that underpin financial sector reforms are passed within a year, then that would be satisfying,” Chidambaram said.
Is It Too Late For India To Implement The New Regulations? Will Their Banks Ever Catch Up With Rivals From China?
posted by Charltonmedia.com | 10:14 PM
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