A Booster Shot

The government’s decision to raise the limit of foreign investment in Indian insurance companies from 49 percent to 74 percent is a timely boost. Can it be a game-changer in an industry weakened by the pandemic?

- Shivanand Pandit

WITH an intention of allowing foreign ownership and control in the insurance sector in India, the Union cabinet has given its permission to amend the Insurance Act, 1938. The cabinet has favoured the proposition to raise the Foreign Direct Investment (FDI) threshold to 74 per cent by clearing the Insurance Amendment Bill 2021 on March 10, 2021. The Bill is in sync with a proposal made in Budget 2021.

On March 15, 2021, Finance Minister Nirmala Sitharaman introduced a Bill cleared by the cabinet in the Rajya Sabha to facilitate raising the FDI limit to 74 per cent. The minister said that in order to achieve the objective of government’s FDI investment policy of supplementing domestic long-term capital, technology and skills for the growth of the economy and the insurance sector, and thereby enhancing insurance penetration and social protection, it had been decided to raise the limit of foreign investment in Indian insurance companies.

At present, the allowable FDI cap in life and general insurance stands at 49 per cent, with ownership and management command with Indian entities. In 2000, foreign investment in the insurance segment was allowed up to 26 percent in an Indian insurance company. The government then raised the FDI cap in the insurance sector from 26 percent to 49 percent in 2015. Previously, the government had permitted 100 percent FDI in insurance intermediaries, such as insurance brokers, re-insurance brokers, insurance consultants, corporate agents, third party administrators, surveyors and loss assessors.