Bill to increase FDI in insurance sector gets Parliament's nod

The Parliament on Monday passed Insurance (Amendment) Bill, 2021 to increase Foreign Direct Investment (FDI) limit in the insurance sector from 49 per cent to 74 per cent with the Lok Sabha approving the proposed law by a voice vote.

The Bill was passed by Rajya Sabha last week. The Bill amends the Insurance Act, 1938.

Piloting the Bill, Finance Minister Nirmala Sitharaman said that hiking the FDI limit in the insurance sector will help insurers raise additional funds and tide over the financial problems.

Currently, the permissible FDI limit in life and general insurance stands at 49 per cent, with ownership and management control with Indians.

The minister said that the government will provide funds to public sector insurance companies but the private players will have to raise capital on their own and the Bill provides them headroom to raise capital.

Three out of the seven public sector insurers are below solvency margin but since they are in the public sector, the government will infuse capital and their solvency margin will be taken care of, she said.

Observing that insurers are facing solvency related issues, she said, "if growth capital is hard to come by, there will be a stressful situation. In order that the stress situation is not left unattended, we need to raise the FDI limit."

The Covid-19 pandemic, Sitharaman said, has further added to the woes of the insurance companies. Some of the life insurance companies are under stress and they need the money to come out of that, she added.

She clarified that FDI is the upper limit and there is no compulsion that every foreign company has to increase it to 74 per cent automatically.

Insisting that there will not be any job loss due to a hike in FDI in the insurance sector, she said policyholders' fund is going to be invested within India and that will not go out.