Plan to Boost Foreign Investments in India’s Insurance Industry Comes Under Fire

July 13, 2004

The new Congress-led government in New Delhi faces a tough test ahead as a key Communist Party ally has come out against its proposal to raise the cap on foreign investment in India’s telecommunications, aviation and insurance sectors.

The Congress party apparently didn’t consult the Communist Party of India-Marxist before announcing the proposal in a budget speech last week.

“To give full control to a foreign party in the telecommunication sector is anti-national. We will never support it,” Communist Party leader M.K. Pandhe told reporters.

In a move aimed at showing foreign investors that India’s new government is committed to market-opening policies, Finance Minister P. Chidambaram said the government planned to raise the cap on foreign equity in telecommunications to 74 percent from 49 percent.

The limit on the aviation and insurance industries would jump to 49 percent, from 40 percent and 26 percent, respectively, he said.

The proposal must be approved by parliament before it becomes law.

“We are against privatization and we will oppose it in parliament,” Pandhe said. “The government must listen to us.”

The CPI-M controls 43 seats in parliament and its support is crucial for the survival of Prime Minister Manmohan Singh’s fledgling government.

Pandhe urged the government to reconsider its decision, but he didn’t say whether his party would withdraw support if the government pushes ahead with the proposal.

India’s budget is expected to be voted on by legislators later this month.

Investors have been jittery since Congress assumed power in May — with support from several communist parties — fearing the leftists would force the government to slow the opening of India’s economy to foreign competition.

Increased foreign investment is the key to sustaining the economy’s growth at 7 to 8 percent in the coming years, Finance Minister Chidambaram said.

Copyright 2004 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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