1. The Indian government in continuation of its
economic reforms decision has proposed the foreign direct
investment ("FDI") to the extent of 49% in insurance
sector besides opening the pension sector for FDI on par with the
insurance sector2. The Pension Fund Regulatory and
Development Authority Bill 2011 ("PFRDA
Bill") to implement this decision will be moved in
the next (winter) session of the Parliament. The decision to
opening the pension sector for FDI is widely welcomed by the
business associations like FICCI, ASSOCHAM and CII. It is expected
that PFRDA Bill will become a law in next session of
Parliament. 2. SALIENT FEATURES OF PFRDA BILL: The salient
features of PFRDA Bill are as under: (a) Establishing a statutory regulatory body to be called the
Pension Fund Regulatory and Development Authority
("PFRDA") which will undertake
promotional, developmental and regulatory functions in respect of
pension funds. (b) Empowering the PFRDA to regulate the National Pension System
("NPS"), as amended from time to
time. (c) Empowering the PFRDA to perform promotional, developmental
and regulatory functions relating to pension funds (including
authorising and regulating intermediaries) through regulations or
guidelines, prescribing the disclosure standards, protecting the
interests of subscribers to schemes of pension funds. (d) Authorising the PFRDA to levy fees for services rendered,
etc., to meet its expenses. (e) Empowering the PFRDA to impose penalties for any violation
of the provisions of the PFDRA Bill (when it becomes law) and
rules, regulations, etc. to be issued thereunder. (f) To establish a vibrant pension advisory committee with
representation from all major stakeholders to advise the PFRDA on
important matters of framing of regulations under the PFRDA
Bill. (g) Registration of all intermediaries operating in the pension
sector. (h) The membership of the PFRDA will be confined to
professionals having expertise in economics, finance or law
only. (i) FDI upto 26% or such percentage as may be approved for the
insurance sector, whichever is higher, is to be incorporated in the
PFRDA Bill. Thus if insurance amendment bill is passed to allow 49%
FDI, the pension sector will automatically have 49% FDI. 3. FDI IN PENSION SECTOR: As per para 6 of
statement of objects and reasons of the PFRDA Bill, FDI for pension
sector intermediaries may be determined and notified in the PFRDA
BILL and outside the Foreign Exchange Management Act, 1999 in line
with other financial sectors in India. 4. OPPORTUNITIES FOR FOREIGN INVESTOR IN PENSION
SECTOR: As per clause 2(g) of the PFRDA Bill,
"intermediary includes pension fund, central recordkeeping
agency, National Pension System Trust (means the Board of Trustees
who hold the assets of subscribers for their benefit), pension fund
adviser, retirement adviser, point of presence (means an
intermediary registered with the PFRDA under section 26(3) as a
point of presence and capable of electronic connectivity with the
central recordkeeping agency for the purposes of receiving and
transmitting funds and instructions and pay out of funds) and such
other person or entity connected with collection, management,
recordkeeping and distribution of accumulations. Therefore, pension
sector will offer huge opportunities to foreign investor in India
besides helping Indian economy to grow, offering better investment
options & services to the consumers and more employment
opportunities in India. 5. CONCLUDING REMARKS: In last one year or so,
economic growth in India has slowed. The fiscal deficit was
increasing and inflation (including food inflation) was high. There
is huge need for capital in infrastructure sector which is to be
mobilised through private investments. It is suggested by various
researches/studies that FDI in pension sector will not only help in
raising funds for capital intensive pension industry which requires
huge capital but it will also enhance the funds available for
investment in other sectors specially the infrastructure sector
which requires huge funds over next five years to stimulate the
Indian economic growth. Besides this, FDI and PFRDA Bill will
ensure entry of international market players who will bring
specialised products and services in the pension industry to make
it more attractive, competitive and consumer friendly. 6. ABOUT US: Global Jurix LLP, Advocates &
Solicitors, India (
www.globaljurix.com) is full services law firm providing legal
services in the fields of the corporate & commercial laws,
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write up and is not exhaustive. This article, if circulated, will
be only for general information purpose and under any
circumstances, the contents of this article should not be construed
as legal advice. The authors are not to be responsible for the
correctness, completeness or quality of the information provided in
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kind of information which is incomplete or incorrect will therefore
be rejected. Footnotes 1 Authors are partners of Global Jurix LLP, Advocates &
Solicitors, India (
www.globaljurix.com). 2 If FDI limit in the insurance sector is not enhanced to
49%, then FDI in the pension sector will be 26% at par with the
insurance sector. The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
ARTICLE
2 November 2012
Foreign Investment In India — Pension Sector
The Indian government in continuation of its economic reforms decision has proposed the foreign direct investment ("FDI") to the extent of 49% in insurance sector besides opening the pension sector for FDI on par with the insurance sector.