M A I N   N E W S

Cabinet nod to 26% FDI in pension funds
Girja Shankar Kaura/TNS

New Delhi, November 16
The Union Cabinet today approved amendments to the Pension Fund Regulatory Development Authority (PFRDA) Bill-2011 allowing 26 per cent foreign investment in the pension sector. The Bill with the amendments would be brought before Parliament during the forthcoming winter session.

The approval came at a meeting of the Union Cabinet chaired by Prime Minister Manmohan Singh today.

An official spokesperson said the government was of the view that the FDI cap on the pension fund should be at 26 per cent, like the insurance sector. However, it would like to retain the flexibility of changing the FDI cap as and when required and that is why it has not been kept as part of the Bill.

The amendments, however, do not mention anything about providing assured returns to the subscribers.

The government had decided not to mention FDI cap in the legislation itself for retaining the flexibility of changing it through an executive order. The 26 per cent FDI cap is to be mentioned in the regulations to the legislation.

The Bill has already been scrutinised by the Parliamentary Standing Committee on Finance.

The committee, which is headed by senior BJP leader and former Finance Minister Yashwant Sinha, wanted the government to specify the FDI cap in the legislation itself and provide minimum guaranteed return to the subscribers.

The government, it may be mentioned, has not been able to raise FDI cap in insurance sector from 26 per cent to 49 per cent because the changes require amendments to law. The Insurance (Amendment) Bill has been pending since 2008.

Once the FDI caps are mentioned in the regulations, it will be easier for the government to modify the ceilings, as and when needed, through an executive order.

The spokesperson further said “the flexibility of withdrawals from funds under the pension scheme, however, would be tightened. It would be allowed only in case of genuine needs... It will not be allowed for frivolous reasons.” The government, however, upheld the Standing Committee’s suggestion to provide greater participation to employees and stakeholders in the Pension Advisory Committee.

Besides other things, the committee suggested that the subscribers to the New Pension System (NPS) should get an assured return on their investments that is at least equal to the interest rate given by the Employees’ Provident Fund Scheme. The NPS, launched in January, 2004, has about 24 lakh subscribers, mostly those employed by the central government and incidentally, no pension fund management company offers a guaranteed pension product in the country. Only those subscribing to the Employees Provident Fund Organisation (EPFO) get 9.5 per cent interest on their contribution.

The Cabinet further approved amendments to the Export Import Bank of India to enable increase in the authorised capital of the Exim Bank, besides strengthening its management structure. The Bill seeks to increase the authorised capital of the Exim Bank from Rs 2,000 crore to Rs 10,000 crore and make a provision for appointment of two whole-time directors, other than the Chairman and Managing Director.

The Bill also seeks to empower the Centre to further increase the authorised capital of the Exim Bank without anymore legislative changes.