(Bloomberg) — American International Group Inc. waited 13 years in India to raise its stake in a local venture from a maximum allowed 26 percent. That wait just got longer.
Opposition lawmakers, during the parliament session ending today, scuppered Prime Minister Narendra Modi’s attempt to revive a bill proposing a higher cap of 49 percent, dealing a blow to his campaign pledge to open the $1.8 trillion economy. The delay in the legislation, pending since 2008, is hampering the expansion plans of insurers including AIG, Standard Life Plc and MetLife Inc.
“We have been waiting for more than a decade for this bill,” said Kaushal K Mishra, chief executive officer at Tata AIG General Insurance, the New York-based insurer’s partnership in India. “It is still not clear when the bill will be passed and in what form it will be. Many large international insurers are waiting for clarity on this.”
AIG is among the companies that see promise in the second most populous country where insurance penetration, or premiums underwritten as a proportion of a country’s total economic output, is less than the global average of 6.5 percent. The delay robs Modi, who needs insurers’ funds to meet his infrastructure overhaul goals, of an opportunity to lure investors during a proposed visit to the U.S. next month.
Sent to Panel
Finance Minister Arun Jaitley today sent the bill to a 15- member select committee, which will submit a report in the next session of parliament.
Modi’s failure to see the bill through has raised doubts among investors over his ability to take politically sensitive decisions, said N. Bhaskara Rao, chairman of the New Delhi- based Centre for Media Studies. His government has also announced plans to revamp pension, land and labor policy, as well as start a uniform goods and service tax — all of which require parliamentary approval.
“This just adds to the disappointment that the government is not moving fast despite getting a strong mandate,” Rao said. “Such instances reinforce the feeling especially in the investor community.”
The rupee has weakened about 1 percent against the dollar since Jaitley presented the budget on July 10. The benchmark S&P BSE Sensex has slipped 0.6 percent from a record high reached on July 24, according to data compiled by Bloomberg. Role Reversal
Efforts by former prime minister Manmohan Singh’s government to raise the investment cap were thwarted by rival political parties, including Modi’s BJP and the Communists, who argued that it isn’t in the interest of the Indian insurance industry.
The main opposition Congress party that originally introduced the legislation about six years ago, in a tit-for-tat role reversal, is now against it after losing to Modi in the elections in May. The BJP lacks a majority in the upper house of parliament, the Rajya Sabha, where the proposal has stalled.
The clash is hurting the economy, said Prasun Gajri, chief investment officer of HDFC Standard LifeInsurance Co., the Mumbai-based partnership of the Edinburgh-based insurer.
“A robust insurance sector will increase financial savings and help in mobilizing the much needed long-term funds for infrastructure development,” he said. “Growth in this segment will support the economy’s expansion.”
India needs about $290 billion by 2017 for public works to upgrade its infrastructure according to estimates by the nation’s Planning Commission. The poor quality of roads, bridges, ports, rail and other facilities, ranked below those in Guatemala and Namibia in a World Economic Forum survey, is hindering an economy that expanded 4.7 percent in the year ended March, near the slowest pace in a decade.