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India proposes 49% foreign ownership cap in pension funds

India rupee bank notes
By Asia Asset Management  
June 26, 2020

India wants to impose a 49% limit on foreign investment in pension funds to keep control in the hands of domestic entities.

In addition, it wants any pension fund investments from countries that share a land border with India, including China, to first seek approval from the Indian government.

The move comes at a time when ties between the neighbouring emerging-market giants are tense after a clash between their troops at a remote Himalayan border on June 15 claimed the lives of several soldiers, their first deadly encounter in more than 40 years.

India’s finance ministry has released draft rules for the plan and is seeking public feedback.

“A government approval would be required for the investing entity or individual from any of the bordering countries including China,” the ministry says in a statement on June 22.

The draft rules go on to state that “relevant provisions of FDI [foreign direct investment] policy issued from time to time would apply in all such cases”.

As for the 49% foreign ownership cap in pension funds, the draft rules say that it is “to ensure that India pension funds' ownership and control shall remain at all times in the hands of resident Indian entities”. It’s unclear if there are any defined ownership limits currently.

The proposals are open for comment until July 22.

According to a fund manager from a Mumbai-based asset management firm, the move, particularly the foreign ownership limit, will help India improve its pension system and provide more coverage for its people without worrying about potential loss of control.

He says the Indian pension fund system currently only covers about 12% of the country’s 1.3 billion people. Over 80% of Indians work in the informal sector, including as ride-hailing drivers and delivery riders, and don’t have any pension coverage.

"So, there is an urgent need to provide some form of safety need and protection for those who are not currently covered by pension systems. But this requires huge capital inflow and I believe the proposed rules can help attract investors," the Singapore-based manager tells Asia Asset Management, speaking on condition of anonymity.