Prime Minister Narendra Modi resorted to a rarely-used executive decree on Wednesday to implement coal and insurance reforms, displaying his resolve to revamp Asia's third-largest economy despite political opposition in parliament.
The move came after opposition parties did not allow a vote on the measures in the upper house of parliament, demanding that the Indian leader first rein in Hindu hardliners who are pushing a partisan agenda. "The ordinances demonstrate the firm commitment and the determination of this government to reform," Finance Minister Arun Jaitley told reporters after a meeting of the cabinet.
"It also announces to the rest of the world including investors that this country can no longer wait even if one of the houses of parliament waits indefinitely to take up its agenda."
Under the order, foreign firms can increase their participation in insurance joint ventures from 26 percent to 49 percent, a potential lifeline for a sector starved of capital and squeezed by regulations.
Shares of companies with insurance businesses such Max India and Reliance Capital rallied on the news. Shashwat Sharma, a partner at consultant KPMG, said the move will draw up to $4 billion of new investments into the sector.
"It will bring in a lot of confidence and people waiting for it would start thinking through it," he said.
But not every foreign investor is expected to immediately start committing fresh funds as the executive order has to be approved by parliament within six weeks of the opening of the next session – scheduled for the start of February - to become a formal law.
Even though the insurance measure enjoys rare bipartisan support, there is a risk that it could meet the fate of the decree Modi issued in October to open up the coal industry to the private sector.
A bill to convert that executive order into a law failed to make headway in the parliament session that ended on Tuesday, forcing the federal cabinet to renew it on Wednesday.
"Will people wait for the ordinance (decree) to be converted in to a law, the answer is yes," said Abizer Diwanji, national head of financial services EY.
"If you are making substantial investments in the country, then you would certainly want to make sure that there is absolute clarity." Modi won a national election this year but he lacks a majority in the upper house which is indirectly elected by state legislators.
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