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Ordinances Issued for Coal & Insurance Sector Reforms
Dec 26, 2014

Seeking to move ahead on crucial reforms, the Government issued ordinances for coal and insurance reforms. Government approved promulgation of an Ordinance to hike Foreign Direct Investment (FDI) cap in the insurance sector to 49 per cent from 26 per cent, as the legislation could not be passed in the Winter Session of the Parliament. The Insurance Bill, which has been pending since 2008 in the Rajya Sabha, seeks to increase the composite foreign investment limit in insurance companies to 49 per cent from current level of 26 per cent.  The 49 per cent cap would include both FDI and foreign portfolio investments.

The proposed hike in foreign investment limit to 49 per cent in the insurance sector has potential to attract up to 7-8 billion dollar (about Rs. 50,000 crore) from overseas investors, giving a major boost to the segment.

The total capital deployed in the private life insurance sector is close to Rs. 35,000 crore. At FDI at 26 per cent, foreign equity is close to Rs. 8,700 crore.

The government also approved re-promulgation of an Ordinance to facilitate e-auction of coal blocks for private companies for captive use and allot mines directly to state and central PSUs. The Coal Mines (Special Provisions) Bill that was moved to replace an ordinance issued earlier was passed by the Lok Sabha in the winter session but it could not be taken up in the Rajya Sabha.

The government promulgated the Coal Mines (Special Provisions) Ordinance, 2014, in October to facilitate coal block auctions after the Supreme Court cancelled 204 coal blocks in September.

The bill provides for the allocation of coal mines and vesting of the right, title and interest in and over land and mine infrastructure, together with mining leases, to successful bidders and allottees through a transparent bidding process.

Under Article 123 of the Constitution, the President is empowered to promulgate ordinances on the advice of the Cabinet only when either of the two Houses is not in session to enact laws. However, before he signs on the dotted lines, the President has to be satisfied that circumstances exist that merit immediate action by way of issuance of ordinances.

In 1986, a Constitution bench of the Supreme Court, which examined the authority of the government to promulgate ordinances, held that the power to promulgate an ordinance must essentially be used to meet an “extraordinary situation and it cannot be allowed to be perverted to serve political ends”. The bench ruled, “It is contrary to all democratic norms that the Executive should have the power to make a law, but in order to meet an emergent situation, this power is conferred on the Governor and an ordinance issued by the Governor in exercise of this power must, therefore, of necessity be limited in point of time.”

Once issued, all ordinances have to be mandatorily approved by both Houses of Parliament within six weeks of reassembling or they cease to operate.


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