Cabinet nod for 49% FDI in insurance to fetch Rs 25k cr

Insurers will need Rs 60k cr in next 5 yrs
Last Updated 24 July 2014, 18:53 IST

The Cabinet on Thursday approved raising the foreign direct investment cap in insurance sector from 26 to 49 per cent but asserted that the management control will rest with Indian promoters. The bill will now be taken up in Parliament, in all probability, in the current session itself.

Once passed by Parliament, it will pave way for long-term capital investments in the insurance industry which is still in a nascent stage 67 years after India’s independence.

Barring the public sector insurance companies, the move will help all other insurers in the country who can attract foreign capital for their expansion which in turn will boost India’s economy and create jobs in the sector. It will also increase insurance penetration in the country. 

It is estimated that the private insurers need about Rs 60,000 crore of additional capital during the next five years. Besides, the move will help channelise household savings away from physical assets like gold. Insurance penetration is still at a miniscule 4 per cent in the country, a major chunk of which is life insurance.

In his Budget speech, Finance Minister Arun Jaitley had said that the insurance sector is investment starved and there is a need to get stable foreign capital in the sector. His Budget proposed to raise the composite cap in the sector up to 49 per cent with full Indian management and control, through the FIPB route.

The composite cap refers to clubbing of foreign investment by strategic and portfolio investors. "The Cabinet Committee on Economic Affairs has approved raising of FDI cap in insurance sector to 49 per cent from 26 per cent," sources said earlier after a meeting of the CCEA, headed by Prime Minister Narendra Modi Thursday morning.

The Insurance Laws (Amendment) Bill has been pending in Parliament since 2008. While the BJP extended its support to the previous UPA regime in passage of the Pension Fund Regulatory Authority Bill last year, it said a categorical no to the insurance cap being raised to 49 per cent.

The insurance sector was opened up for private sector in 2000 after the enactment of the Insurance Regulatory and Development Authority Act, 1999 (IRDA Act, 1999).

“The proposed FDI cap increase will hopefully drive capital infusion in the Insurance sector and revive growth. Given that the industry has witnessed muted growth in recent times, this move will further enable the industry to serve millions of under-insured Indians, improve life and health insurance coverage and provide long term savings vehicles,” Industry body Ficci said after the cabinet approval.

CII and Assocham expressed the similar sentiments.  At present there are 44 private insurance companies authorised by the Insurance Regulatory and Development Authority.

(Published 24 July 2014, 18:53 IST)

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