India may allow foreign investment of up to 26 per cent in the pension sector, giving global players access to a roughly $2 billion pool of assets that is expected to grow quickly as more people join the organised workforce.
The recommendation by a parliamentary panel on a pending pension bill is the latest fillip to economic reforms that have stalled as the government was paralysed by a spate of scandals.
The government has been taking steps of late to make the country more investment friendly, backing in principle foreign direct investment in multi-brand retail, a reform that has been delayed for years.
Some of the reform measures, including a proposal to lift the cap on foreign holdings in insurance companies to 49 per cent from 26 per cent, require parliamentary approval.
Now, pension funds of over a million employees in India are managed by IDFC, State Bank of India, ICICI Prudential Life Insurance, Kotak Mahindra Bank, Reliance Capital and Life Insurance Corp of India.
Foreign firms have been lobbying for liberalising access to the pension and insurance sectors in a fast-growing country where most of the 1.2 billion population lack such investments.
Most of the 23 life insurance players in India, nearly all of which have a foreign partner holding a 26 per cent stake, are eager to enter the pension fund market, analysts said.
Global players holding stakes in Indian operators include Aviva, AIG, and AXA.
The pension and the insurance bills are currently being examined by a parliamentary panel, headed by Yashwant Sinha, former finance minister and a leader of the main opposition Bharatiya Janata Party.
The panel has also recommended that the returns from a new government pension scheme — subscribed by employees of the central and state governments — should fetch a minimum return at par with the state-run social security fund, the Employee Provident Fund (EPF).
The EPF, covered by separate law, manages more than $50 billion worth of assets for around 40 million employees and paid a 9.5 per cent return in the fiscal year that ended in March 2011.