In what could give a fillip to stalled reforms in the financial sector, the Union cabinet on Wednesday gave the green signal to the long-awaited PFRDA bill, paving the way for opening up pension funds to 26 per cent foreign direct investment (FDI).

An official spokesperson said the bill is likely to be passed in the winter session of Parliament. The government has incorporated most recommendations of the parliamentary standing committee on finance led by former finance minister Yashwant Sinha.

The bill, however, will not provide for an assured return option to new subscribers, the spokesperson said. However, there will be no FDI cap specified in the bill. This, she said, was to allow the government flexibility to decide the cap as in other sectors.

This will ensure that the cap can be changed through an executive order and without having to go to Parliament for an amendment to the law.

“The government feels the cap should be at 26 per cent, on par with that in the insurance sector. However, it would like to retain the flexibility of changing the cap as and when required,” she said.

The bill confers the statutory status on the Pension Fund Regulatory and Development Authority, set up in 2004 after the launch of the new pension scheme for government staff. The status of the authority is now interim in nature, pending the passage of the bill.

The government’s proposal to raise the FDI cap in insurance to 49 per cent from 26 per cent now has been held up; it requires an amendment to the Insurance Regulatory and Development Authority Act, already tabled and now before the standing committee.

The PFRDA bill was first tabled in 2005 and then referred to the standing committee. The committee gave its report in 2008, but the bill could not be passed as the Lok Sabha was dissolved ahead of the general elections. Hence the bill lapsed.

Finance minister Pranab Mukherjee reintroduced the bill in March, incorporating most of the recommendations of the committee. As that committee belonged to the previous Lok Sabha, the bill had to be referred to a reconstituted panel led by Sinha.

The cabinet turned down the committee's suggestions that subscribers of pension schemes be allowed greater flexibility in pre-maturely withdrawing money from their accounts. On the contrary, the flexibility clause will be tightened. “It will be allowed only in case of genuine needs...and considered only when the need is critical,” the spokesperson said.

The tightening aims to ensure that subscribers can maximise their pension after retirement.

The standing committee’s suggestion that employees and stakeholders be allowed a greater say in the pension advisory committee has been accepted.

Sinha told this newspaper that BJP was yet to take a view on the cabinet decision not to fix a specific FDI cap in the bill.

krsudhaman

@mydigitalfc.com