Cabinet clears 49% FDI in insurance

The cabinet today cleared the Insurance Laws (Amendment) Bill, which proposes to raise foreign direct investment limit in insurance sector to 49 per cent, from the current level of 26 per cent. The bill will be introduced in Parliament during the current session.

Finance minister Arun Jaitley in his budget speech earlier this month had proposed to raise the cap to 49 per cent. Barring public sector insurance companies, all other insurance companies would benefit from higher FDI cap, according to him.

"The insurance sector is investment-starved. Several segments of insurance sector need expansion. The composite cap of the insurance sector is proposed to be increased to 49 per cent from the current level of 26 per cent with full management and control through the FIPB (Foreign Investment Promotion Board) route," he had said.

The government had opened insurance to the private sector in 2000 after the enactment of the Insurance Regulatory and Development Authority (IRDA) Act, 1999.

The government had since sought to raise private sector investment limit in insurance ventures from the existing 26 per cent to 49 per cent.

The previous Congress-led United Progressive Alliance government introduced the Insurance Laws (Amendment) Bill to hike foreign holding in insurance joint ventures to 49 per cent in 2008. However, this could not be approved because of opposition from trade unions and the left-wing opposition parties.

Since the sector was opened up in 2000, the number of companies in the insurance sector, including in the life, non-life, and re-insurance segments, has gone up from seven to 53 as of 31 March 2014.

A higher foreign investment limit in the insurance sector could result in additional capitalisation of insurance companies by between Rs40,000 and 60,000 crore over a period of time.

The bill stipulates that insurance companies will not require Foreign Investment Promotion Board (FIPB) nod for FDI of up to 26 per cent while it would be needed for the 49 per cent limit.

Shares of companies related to insurance business surged today with Reliance Capital and Max India rising nearly 4 per cent.