New Delhi, Nov. 15: The Congress-led government, which was rebuffed on Monday by the Left on the pension bill, will continue working on proposals to raise the foreign direct investment cap in the insurance sector and open up FDI in retail, but will delay bringing them out in the open.
The government favours raising the foreign direct investment cap for insurance companies from 26 per cent to 49 per cent but this is being bitterly opposed by the Left.
Officials, however, hope that a compromise will be worked out that will allow the government to raise the FDI ceiling in insurance to 30 per cent.
The government's argument is that since it takes up to seven years for an insurance start-up to break even and significant amount of money has to be pumped in, it makes sense to raise the foreign equity bar.
Although the government and finance minister P. Chidambaram have in the past let it be known that they favoured lifting the cap on insurance companies, pressure from the Left parties, whose support is vital for the continuation of the Congress-led government, has ensured that such a step is not taken.
The strategy on the retail front is for a limited opening up, taking care of Left concerns over job loss, while involving foreign investment in building back-end infrastructure like cold chains.
Top officials said the government has been sounding both Left leaders as well as domestic retail players and retail global giants to work out a compromise.
The aim would be to limit retail format stores supported by global giants to up-market products and to selected metropolises, officials said.
Top finance ministry officials who support the move feel it could prove to be “goldmine” in terms of foreign investment. They say allowing up to 26 per cent in the current phase could meet objections posed against “giving away retail trade control to foreign investors”.
Retail trade in India accounts for around 11 per cent of GDP and employs over 25 million people or 8 per cent of the total workforce. Analysts contend this figure could change dramatically if transnationals came in and increased efficiency in this sector.
Last year, the Left crossed swords with the Congress government over plans to allow up to 100 per cent FDI in retail which the former felt could see millions of jobs being lost in the pop and mom stores across the country.
Officials say they are hopeful the compromise will work out as Bengal’s capital Calcutta, where some 7 per cent of the country’s buying power is concentrated, itself has emerged as a major retail hub, attracting the second highest investment in malls, after Mumbai.