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Perspectives from India

Major boost for critical sectors

Major boost for critical sectors

Ravi Capoor, Former CEO, IBEF

Mar 25, 2015 1:12 PM

Three critical bills - namely the Insurance Laws (Amendment) Bill, 2015, Coal Mines Special Provisions Bill and the Mines & Minerals Development and Regulation (MMDR) Bill have been cleared by the Parliament in the current session. These have been rightly highlighted as transformative by the industry going forward.

The clearance of the insurance bill has effectively increased the foreign investment limit from 26 per cent to 49 per cent in insurance companies, which is expected to attract around US$ 8-10 billion into the sector as per industry estimates. A report by CII in partnership with McKinsey projects that the industry has the potential to reach a total size of US$ 250 billion in terms of gross written premiums by 2025 and emerge as one of the top 10 insurance markets globally. Foreign investments will provide a much needed boost for the sector, which requires capital investments of around Rs 55,000 crore (life and non-life) over the next five years. Additionally, the Insurance Regulatory and Development Authority (IRDA) has been empowered to frame regulations and take decisions on areas like penalties, expense management and fixing remuneration for agents.

With the new coal legislation coming into effect, procedures for the coal auctioning process have been formalised. Transparency in the auctioning process as a result of the legislation (which carries on from the ordinance introduced earlier) will further augment the confidence of private players. According to estimates, the ongoing auction is expected to fetch the states revenues of more than Rs 2 lakh crore over the life of the mines that have been auctioned till date. The government now expects to be able to complete the auctioning of all 204 coal blocks by March 2016.

The coal sector has effectively been opened to private companies, who can now mine coal and also sell it in the open market. So far, they were only permitted to utilise it as fuel for their own factories. Mr Piyush Goyal, Union Minister for Coal, Power and Renewable Energy, stressed that the government wants to ensure augmentation of resources through commercial mining, so that coal can be provided through legal means and cheaper rates for households as well as small scale industries after meeting the needs of end user segments, which include plants, public sector units and state governments. He also informed that the next auction for the sale of 15-20 coal blocks is expected to commence by the end of April. The MMDR bill allows auctions in the granting of mining leases for bulk as well as notified minerals. It also increases the tenure over mines to 50 years (from 30 years earlier) for all minerals except for coal, lignite and atomic minerals.

India's coal reserves were estimated at around 301.56 billion tonnes as of April 1, 2014, while total production in 2013-14 was pegged at 565.64 million tonnes; signifying enormous potential for commercial mining. Coal is of critical importance to the infrastructure sector, as it is the source for around 52 per cent of primary commercial needs and 66 per cent of the country's total power generation. With the passage of the MMDR Bill, the government has also provided a strong impetus to other critical resource oriented sectors, like steel, aluminium and cement. Increasing traction in these sectors as a result of these two legislations will, therefore, have a strong multiplier effect on infrastructure and the Indian economy in general over the long term.



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