On July 22^nd, 2008, the ruling UPA party and its allies won a trust vote in the Indian congress, paving the way for movement on a number of initiatives. For firms involved in India or those considering trade with India, the following list provides a glimpse into changes and developments that will likely occur in the near future. A clear trend in the initiatives is an opening up of India to global investors and standards.

For each area, the aim of the regulatory changes being considered will be discussed as well as any challenges foreseen in the passing of the bill.

Banking Regulation (Amendment) Bill and Comprehensive Framework for License for New Banks

One aim is to withdraw the current cap of 10% on voting rights for investors and allow voting as per shareholding. This will result in a more just system and promote investment. Such a bill will require parliamentary approval, with the UPA needing to exercise floor management and prevent the BJP party from blocking it.

A second aim is to develop a comprehensive framework for the licensing of new banks. Though the government had earlier stated that new licenses would only be considered after 2009, it is likely that the UPA will now look to promote financial inclusion by examining who can promote a new bank. Such a framework could be announced in the near future, but it is likely that any implementation will not take place until post polls.

Pension Fund Regulatory and Development Authority Bill

The aim is to have a comprehensive framework for private players to offer pension plans to create old-age income security. This will enable the private sector and individuals to access pension plans. If the UPA managers work with the opposition, this bill should go through.

Foreign Education Providers Bill

The aim is to create a framework to allow foreign universities invest in setting up campuses in India, thereby increasing the capacity of India-based universities and improving research capabilities. Such a framework would also create jobs and result in fewer Indians going abroad to study. In order for this bill to be passed, the UPA will have to rein in some of its own ministers who have previously not supported such a framework.

FDI in Multi-Brand Retail

The aim is to allow foreign investors to participate in organized retail. This will enable creation of a producer to consumer supply chain and remove the middleman from the process. In addition to the cost-savings for consumers, the change is also being promoted as an engine for job creation. Currently, only single foreign entities can set up shop in India. There could be some opposition to this from UPA allies.

Civil Aviation Policy

The aim is to open up the Indian civil aviation industry to international expansion. The policy would remove the prohibition on foreign equity participation in domestic airlines as well as the five-year cap. In addition, it would encourage the participation of airlines in small airports and the creation of regional airline hubs and cargo terminals to help exports. This initiative could face opposition from UPA allies like RJD on certain points.

Special Economic Zones

The aim is to promote investment, employment, export and growth through the creation of enclaves with special tax benefits. Currently, many of the policy issues of the SEZ regime are caught in administrative issues and while labour laws will not be touched, other issues may be resolved.

Insurance Regulation and Development Act

The aim is to enable foreign partners and foreign investors to contribute up to 49% of the equity for insurance companies. This increase from the current 26% will enable access to more sources of capital for the insurance industry. In order for this act to be passed, the suspect BJP assurance would need to be addressed and the UPA will have to ensure support.

To discuss any of these policy initiatives and what it means for your firm, please
contact Surje's India Practice.