GOVT ALL SET TO USHER IN FINANCIAL REFORMSThe

New Delhi: With the Left off its back, the government is all set to initiate major reforms, especially in the financial sector, are expected in the coming months. Labour reforms too are long awaited, but the government knows that this is much more politically fraught, and is unlikely to do anything on which there is no consensus among UPA allies. Official sources said the Prime Minister would soon be taking up the issue of reforms with Samajwadi Party. "Our aim will be to build a consensus on these reforms with Samajwadi leaders and initiate steps to usher them in before the Lok Sabha polls next year," said a source. Singh believes that valuable time has been lost because of the Left's "cussedness" on reforms. Singh also believes that a dose of meaningful reforms would also be an antidote to the general sluggish sentiments and may, in fact, help in tackling inflation and other aam admi issues.

Financial sector reforms, covering insurance, banking and pensions, could spur investments and add as much as 1.5% of the country's growth. That, in turn, would give the government the opportunity to address issues of welfare and distress. The main reform in insurance is to raise the foreign direct investment cap from 26% to 49%. In fact, Finance Minister P Chidambaram had proposed this FDI hike, but in light of the Left's total opposition to his proposal, he had to backtrack. But once the cap is relaxed, a lot more foreign money is expected to flow in and help to expand the insurance sector. The Indian pensions sector is totally unreformed. The government wishes to create a statutory regulator for the sector and had promulgated an ordinance for appointing a Pension Funds Regulations and Development Authority. But once again, agreement with the Left proved elusive, and the ordinance lapsed. The appointment of a regulator will set the scene for breaking the monopoly of the Employees Provident Fund Organisation (EPFO), with which both the government and the private sector have to park their pension money currently. The regulator can permit new pension funds and create the framework for them to operate in an open and transparent environment. In turn, pension funds can vie for government or private sector pension money, offer advice on its best utilization and also give companies and individuals options on how best they think their money can be deployed that is, how much in fully secured instruments and how much in the market where returns could be higher but so would be the risk. Finally, the banking sector reforms that have been hanging fire entail allowing the government's stake in public sector banks to come down below 50% and raising the current 1% cap on voting rights that applies to all other shareholders in state-owned banks. Reformers believe that this will bring in megabucks and enhance banks' capital adequacy ratio.

Source: Economic Times