NEW DELHI: The finance ministry has set the ball rolling on opening up the country's $2-billion pension sector to foreign direct investments.
It has asked the industry ministry to frame an FDI policy for the sector after the Foreign Investments Promotion Board approved a proposal from a pensions manager for foreign capital infusion.
At present, both the Foreign Exchange Management Act, or FEMA, and the comprehensive foreign direct investment policy circular are silent on pension FDI. "There is a need for clarity as the current policy does not have any specific provision for allowing FDI in pensions," an official told ET.
The FIPB, the nodal body for clearing overseas capital injection proposals, recently gave its nod to Societe Anonyme of France to pick up 25% stake in IDFC Pension Fund Management Company. In absence of any rules, the FIPB, the nodal body for clearing FDI proposal, has relied on the framework for asset management companies, which are allowed to have 100% FDI.
The industry ministry's department of industrial policy and promotion, the government body responsible for framing the FDI policy, is likely to suggest a conservative limit in line with the recommendations of a key parliamentary committee that is looking into the pensions bill.
Last week, the standing committee on finance, headed by former finance minister and BJP leader Yashwant Sinha, suggested capping pension FDI at 26%, on a par with that in the insurance sector.
The Pension Fund Regulatory and Development Authority Bill 2011 makes no mention of foreign investment in the sector, leaving it to be fixed by an executive decision under the Foreign Exchange Management Act, 1999. The house panel said the details of the foreign investment policy should be clearly included in the PFRDA Bill.
The 26% limit had also been agreed upon when fund managers for the New Pension Scheme were selected by interim regulator Pension Fund Regulatory and Development Authority.
PFRDA had invited the bids in line with what had been proposed in the pensions bill introduced in 2005. However, the government did not mention any limit when the bill was tabled again this year after the previous bill lapsed following dissolution of the Lok Sabha.
Former PFRDA chairman D Swarup favors a higher limit, on a par with that for the asset management companies, or AMCs. "Pension fund managers are akin to asset managers. PFRDA treated them as AMCs for the purpose of capital structure and, therefore, for FDI they should be treated like AMCs," he said.
Akash Gupt, executive director, PwC, also says the government could go with 100% FDI allowed in asset management companies. "The government needs to take a decision whether a separate policy should be issued for pension fund managers," he said.
Source : economictimes.indiatimes.com