Union cabinet clears Insurance Bill to raise FDI cap

The Cabinet on Wednesday approved the Insurance Amendment Bill to raise the foreign direct investment cap in the sector from the current 26 per cent to 49 per cent with a composite cap.

The bill will now be introduced in the Rajya Sabha on Monday.
The composite cap refers to clubbing of foreign investment by strategic and portfolio investors.

Earlier in the day, the Parliamentary Select Committee in its report to Rajya Sabha had approved the insurance amendment bill and recommended a composite foreign investment cap of 49 per cent in the sector, a demand vociferously made by the Congress party. “The Committee recommends that the composite cap of 49 per cent should be inclusive of all forms of foreign direct investment and foreign portfolio investments,” the report said.

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. According to industry estimate, the opening of insurance sector will bring forth Rs 50,000 crore investment.

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.