Attempt in India to Raise Foreign Ownership Cap for Insurance Hits Logjam

By | December 23, 2014

Indian Prime Minister Narendra Modi risks failing to win approval from lawmakers for one of his biggest policy changes yet, a setback that dims prospects for other key bills until he wins greater sway in the upper house.

In a parliamentary session expiring today, upper house members have refrained from a vote on raising the foreign ownership cap in the insurance sector to 49 percent from 26 percent. Under a best-case scenario, Modi won’t control the body until 2017; more realistically it’ll be 2018.

Further delays for the bill would jeopardize other key moves to overhaul Asia’s third-biggest economy, including implementing a national sales tax and making it easier for companies to acquire land. Expectations of swift changes after Modi won a lower house majority in May helped put India’s main stock index among the world’s best performers this year.

“Out of two houses, one is functioning normally and the other isn’t being allowed to function normally,” Finance Minister Arun Jaitley said in the upper house on Dec. 18. “It’s the arrogance of numbers” of the opposition parties in the body, known as the Rajya Sabha, he said.

The upper house functioned for about 75 hours over the current month-long session, or about 61 percent of its scheduled time, compared with 129 for the lower house, according to PRS Legislative Research, a group that tracks India’s parliament. Both spent about a third of that time discussing legislation.

Modi’s Bharatiya Janata Party now controls 45 seats in the 245-member upper house, a number that rises to 59 when allies are included — still well short of the 123 needed to pass legislation. Securing another 64 seats will take up much of Modi’s term, which expires in 2019.

In the Rajya Sabha, 233 members are elected to six-year terms by state legislators through a system of proportional representation. The other 12 are nominated by the president, usually on the recommendation of the prime minister. About a third of its members retire every second year.

Modi’s Options

Since the national vote, Modi’s Bharatiya Janata Party has racked up key state election victories, boosting its chances of one day taking control of the upper house. Exit polls show the BJP gaining in two more states, Jharkhand and Jammu and Kashmir, when results are announced today.

The government has several options to circumvent the upper house if necessary. It can ask the president to call a joint sitting of parliament.

This tactic, however, has only been used three times to pass legislation in 67 years since independence: in 1961 to prohibit dowries for marriages; in 1978 to repeal a law establishing a commission to select bank employees; and in 2002 to pass a tougher anti-terrorism law.

Forced Conversions

Modi can also pass laws through an executive order, known as an ordinance. These lapse, however, if parliament fails to ratify them in a vote within six weeks of the start of the next parliament session.

Modi’s other option is to win the support of some regional parties, such as those in Tamil Nadu and West Bengal that have a stronger presence in the upper house. Lawmakers from those parties were among those who spent time debating the merits of forced conversions of Muslims and Christians by extremist Hindu groups.

“It’s hard for them to push ambitious legislative changes unless they work with the opposition by avoiding hostile political actions like forced conversion,” said Nilanjan Mukhopadhyay, author of “Narendra Modi: The Man, The Times.” Modi probably won’t have a majority in the upper house until 2018, he said.

If India’s facing a crisis, then Congress may start approving the bills, many of which were drafted under its 10-year rule that ended in May. In 2008, the party first introduced the insurance bill that it’s now blocking.

Due to proportional representation, it’s impossible for Modi’s BJP to win all the 95 upper house seats that become vacant in the next few years.

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