Union Budget 2021: Nirmala Sitharaman proposes raising FDI in insurance sector to 74% from 49%

The Budget for 2021-22 proposed a hike in foreign direct investment limit in the insurance sector from the current 49% to 74%, a move that will help in strengthening the sector and enhance insurance penetration in the country, which is one of the world’s lowest.

Life insurance penetration in the country is at a meagre 3.6% of the GDP while the global average is 7.1%, and in the case of general insurance, it is even worse at 0.94% of GDP, as against the world average of 2.88%.

The Budget also announced to bring an initial public offering IPO of insurance behemoth Life Insurance Corporation LIC after April. Currently, the government owns the entire 100% stake in LIC, the country’s biggest company by market capitalisation with an estimated valuation of Rs 8-10 lakh crore.

Finance Minister Nirmala Sitharaman proposed to amend the Insurance Act, 1938 to increase the permissible FDI limit from 49% in insurance companies and allow foreign ownership and control with safeguards.

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She said under the new structure, the majority of directors on the board and key management persons would be resident Indians, with at least 50% of directors being independent directors, and a specified percentage of profits being retained as a general reserve.

While insurance companies and Moody’s Investors Service hailed the proposal, the RSS-aligned Bharatiya Mazdoor Sangh (BMS) expressed disappointment saying it will increase foreign dependence and should be reconsidered. It also criticised the LIC IPO.

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Shares of companies related to the insurance sector recorded up to a 9% jump after the government proposed to increase the FDI limit.

The New India Assurance Company, ICICI Lombard General Insurance, HDFC Life Insurance, ICICI Prudential Life and SBI Life Insurance Company were the ones that saw their stocks soaring.