Much has been read into the government move to take foreign direct investment (FDI) out of the pension reforms Bill and keep it as an executive decision. But the pension sector is not yet ready for FDI, says interim sector regulator Yogesh Agarwal.
He told Business Standard that it might not be before 2-3 years that foreign investors would show some interests in the pension sector and a call on putting a cap on FDI would be taken at that moment of time only.
“First of all, the pension sector has to grow. Till now, I don’t see much interest from foreign investors in the sector,” Agarwal, who heads the Pension Fund Regulatory and Development Authority (PFRDA), said.
The PFRDA chairman said foreign investors would wait for the sector to expand and gain a critical mass. “Only then, interest (from foreign investors) will come,” he added.
Talking of FDI at this point of time, was really a theoretical exercise, he emphasized.
“When time comes, when expression of interest comes from foreign investors, we will take a view in conjunction with the Government of India as to how much FDI will be allowed,” Agarwal said.
To a query on whether there was any preliminary thinking to put the FDI cap on the sector, he said, “No... There is no need to take a call (on putting FDI cap on the pension sector) because there is no interest.”
Recommending on the earlier version of the PFRDA Bill, which lapsed with the dissolution of the Lok Sabha in 2009, Parliament’s standing committee of finance had suggested the FDI cap in the sector might be in line with that in the insurance sector. Currently, 26 per cent FDI is allowed in private sector insurers. A Bill to raise this cap to 49 per cent is with the standing committee on finance.
A proposal to raise the cap in private insurance companies was made by then finance minister P Chidambaram in his speech for the Budget in 2004. It is yet to be implemented. So, the government decided to keep FDI issue out of the revised version of the PFRDA Bill, tabled in the Budget session of Parliament last month.
Explained Agarwal, “In drafting the Bill, we found that what should be the extent of FDI need not be put in the Bill. It is not a legislative issue. It is an executive decision, as to how much FDI will be allowed.’
He said this would make it easier for the government to decide on increasing or decreasing FDI percentage in the pension sector.
“All the government has to do is to make up its mind and issue an order,” he added.
PFRDA was established by the government on August 23, 2003, through an executive order. It is still an interim regulator and does not have statutory powers. The PFRDA Bill will give statutory powers to the regulator.
Meanwhile, the Union government had announced a new pension system (NPS) for its recruits who had joined from January 1, 2004. Since April 1, 2008, the pension contributions of central government employees under NPS are being invested by professional pension fund managers. As many as 27 state governments and Union Territories have also notified NPS.
NPS was also thrown open to all citizens of the country since 2009.
Besides, the government had announced a co-contributory pension scheme, called Swavalamban, for those in the unorganised sector. The government provides Rs 1,000 to every account a year for five years for those who joined the scheme during 2010-11 and 2011-12. The government expects two million subscribers to be there in this scheme by March 2012 from the current level of 500,000.
Source: Business Standard, April 4, 2011
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