Planning Commission deputy-chairman Montek Singh Ahluwalia (right), and member Anwarul Hoda in New Delhi on Wednesday. (PTI)

New Delhi, April 2: The government should consider reducing its stake in state-run banks to 33 per cent and allow foreign investors to hold a larger stake in insurance ventures, according to a plan panel report on measures to boost the service sector.

Headed by Planning Commission member Anwarul Hoda, the high-level group on service sector also recommended the sale of vegetables and fruits in bulk by retail chains to unorganised retailers enabling the later to get the benefit of supply chains.

It wanted state-run banks to consolidate their ownership, which the finance ministry has been trying for several years without success. Bank unions and Left parties, which support the government from the outside, have opposed the move.

Besides bank, insurance and retail, the 157-page report, which was submitted to Prime Minister Manmohan Singh today, covered service sectors such as education, healthcare, tourism and IT.

The Hoda panel’s move to yank down state ownership in banks is unlikely to succeed because of the opposition by unions and the Left parties.

North Block officials believe the best that can be done “is to bring more public issues of PSU banks and encourage a few mergers between some of the State Bank of India subsidiaries.”

However, the report has said that in the medium term, the ability of the banks to raise capital for growth without reducing the government shareholding to less than 51 per cent will be severely constrained.

“It would, therefore, be appropriate to consider evolution of a path towards a reduction of government ownership in a manner that minimises dislocation or dissonance among various stakeholders,” the report said.

In insurance, the study suggests higher foreign ownership, which had been put on hold because of objections raised by the Left parties. The government had considered raising foreign investment in insurance to 49 per cent from the current 26 per cent.

The report also suggested detariffing of insurance products, a uniform stamp duty for the debt and security markets as well as reforms in the pension sector.

It suggested integrated logistical hubs at strategic points. There should be “transport townships” outside the municipal limits of every city with a population of more than 10 lakh.

The panel recommended service tax in outsourced manpower services used by retailers only on the fee component and not on the salaries of outsourced employees.

The group was constituted by Prime Minister Manmohan Singh in 2006.