Foreign Direct Investment outside the Ambit of the PFRDA Bill

The Indian government in March 2011 decided to keep the issue of Foreign Direct Investment (FDI) outside the ambit of the Pension Fund Regulatory and Development Authority (PFRDA) Bill. The government’s decision will thereby ensure that Parliamentary approval is not needed to decide the limit for foreign investment in pension funds. It was possibly difficult to include the FDI clause in the bill as then it would have become difficult to amend it and increase the sectoral cap in the process. The FDI clause is a part of the Insurance Act.

The PFRDA Bill, 2011 which was tabled in Parliament by finance minister Pranab Mukherjee on 24 March 2011 does not mention the FDI aspect in the bill. It however stated that the government would announce a policy for FDI in pension fund separately.

The PFRDA Bill which was originally introduced in Parliament way back in 2005 was vetted by the Standing Committee on Finance. Back then the Standing Committee had suggested that FDI in the pension sector should be in consonance with that in insurance sector. In 2005 the Bill had sought to allow up to 26 per cent FDI in the sector.

The Bill has incorporated the suggestion of the Standing Committee and now only seeks to set up a statutory pension regulator. The pension regulator would have the legal backing to enforce contracts and supervise the functioning of the National Pension System as well as other pension funds. It also aims to permit pension funds to invest a part of their corpus in equities.

The PFRDA Bill has sought to bring all government employees who are a part of the NPS under its ambit. It further stated that 27 states agreed to join the pension scheme under the proposed law that is expected to provide social security to millions of employees and funds for infrastructure sector.