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• Has the Parliamentary Standing Committee on Finance become an obstruction on the road to reform, or are those just unfair reports carried by the press? That’s the key issue tackled in this episode of CNBC-TV18’s show India Tonight.Joining Karan Thapar in this discussion is the chairman of the Parliamentary Standing Committee for Finance and former Finance Minister, Yashwant Sinha.
• Q: Newspapers suggest that after stalling several critical reforms, the report of the Parliamentary Standing Committee on Finance, which will be tabled in Parliament today, is going to throw a major spanner in the reforms process. How do you respond to such reports?
• A: You first have to understand the Standing Committee system in our Parliament. The Standing Committee consists of 30 members from both houses of Parliament and a chairman. The representation is given in terms of your strength in both houses, so automatically it is the ruling party or the ruling coalition which is in majority in all committees.In the committees so far, we have functioned without any politics. We leave our political persuasion outside the room. When we come in, we are individual members of Parliament, we attend to issues which are before us in as objective a manner as possible. So though I am the chairman of the committee, I am still only one member and you cannot get a report through the committee without building a consensus. So as chairman, my responsibility is to build a consensus and it was on the basis of consensus that we have adopted these three reports to which you are referring.
• Now to come to your second question as to whether this is a spanner in the works of reforms, I would say no it is not so. There is a popular misunderstanding in this country, especially amongst the papers and commentators, that economic reform means foreign direct investment (FDI). If you take any decision in favor of FDI, you are a great reformer, but if you start building roads in the rural areas that’s of no consequence, no interest. So making economic reforms synonymous with FDI is something which I don’t accept.So I’ll tell you what are the details of the report that we have submitted, but I will seriously contest the claim or the allegation that the reports that we have presented have thrown a spanner in the works of reforms.
• Q: The government seeks to increase the cap on FDI in insurance from 26 to 49%. Why are you are against that?
• A: You can say I am the father of insurance sector reforms because I presented the bill in Parliament in 1999 and it was carried towards the end of that year. We did it in close collaboration with the Congress party, which was then in opposition, and it was the Congress party at that point of time which insisted that FDI should be restricted to only 26% and nothing more than that. So because we wanted their corporation, we agreed to restrict it to 26% in 1999-2000.
• Then because FDI was restricted to 26%, we had to think long-term in terms of the equity structure of the private sector insurance companies. So to begin with, we said 74% of the equity shall belong to the Indian partner, but after 10 years, the Indian partner shall also be required to disinvest his shareholding. So the foreign investor holds 26%, Indian investor holds 26% and the balance 48% was supposed to be widely held by the people of India through the issue of IPOs.
• Now when the government says raise it to 49%, this falls by the way side. Then there is nothing left for them to go the market. We looked at the figures of market capitalization in the previous years, and it has been anywhere between 60,000 crore- 85,000 crore except for 2008, where it was around Rs 26,000-Rs 27,000 crore. We asked the Insurance Regulatory and Development Authority (IRDA) and the Ministry to tell us the amount of money which was needed in order to recapitalize the insurance companies, if they were to go to the market and their answer was it will be a figure between Rs 40,000-Rs 60,000 spread over a period of five years.

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