MUMBAI // India's federal cabinet yesterday approved a wave of reforms opening up the pensions and insurance industries to foreign investment as the government forges ahead with its efforts to boost the economy.
Manmohan Singh, the Indian prime minister, has so far stood firm on his decision to open up the economy to more money from overseas despite strong resistance and protests.
The cabinet cleared bills to increase the cap on foreign direct investment into the insurance sector to 49 per cent and open up the pensions industry to foreign investment for the first time.
The Indian rupee and stock market rallied yesterday on expectations of the announcement, with the rupee hitting its highest point against the US dollar in five and a half months.
The pensions and insurance reforms will require parliamentary approval before they can come into effect.
"The benefit of this amendment will go to private sector insurance companies, which require huge amount of capital and that capital will be facilitated with the increase in FDI to 49 per cent," the finance minister P Chidambaram told reporters
Yesterday's announcement follows the announcement of a slew of reforms last month, including opening up the supermarket sector to foreign direct investment of up to 51 per cent from foreign chains. The move will allow names such as Walmart and Tesco to set up shop in the country.
While the move was cheered by many investors and corporates, it was met with cricitism from the opposing political parties and the government's allies alike, with many arguing that family-run shops would be forced to shut because of the reforms.
Protests were staged across the country by people who also challenged a reduction in fuel subsidies by the government. Mamata Banerjee, the head of the Trinamool Congress, pulled her party out of the ruling coalition as Mr Singh declined to rollback his decision on foreign direct investment in retail.
Other measures that were announced last month included allowing foreign airlines to buy stakes of up to 49 per cent in Indian carriers, while the broadcasting sector was also opened up to more investment from overseas.
"The government has to take a number of decisions," Mr Chidambaram told the BBC in an interview on Wednesday. "As we take these decisions it will be clear that we are on the reform path and we will continue on that path. I think we will return to 9 per cent growth once we address certain fundamental constraints."
Mr Singh has argued that such moves are vital to revive India's economy, with its growth having slowed to 5.5 per cent in the first quarter of the financial year.
Before the flurry of reforms that have come through in recent weeks, the Indian government had been accused of dithering over taking decisions on big-ticket economic reforms.
Such "policy paralysis" led to a warning from the credit ratings agency Standard & Poor's that India could have its rating downgraded to "junk" status.
The government also unveiled a much-needed financial restructuring package for the power sector last month after more than 600 million people were left without electricity this summer in the biggest blackout in history.