Delhi likely to raise FDI cap in insurance companies to 74%

Indian government is likely to raise foreign direct investment (FDI) cap in insurance companies. In yet another big reform initiative aimed at bringing more capital into the insurance business, the union government may soon open the sector to 74 per cent FDI under the approval route to bring parity with the banking sector.

The proposed changes in the FDI limit for insurance is part of another round of overhaul of the FDI policy that the government is looking to implement to make the policy progressive and less restrictive. This has become important post Covid-19 outbreak.

Currently, FDI up to 49 per cent is permissible in insurance under the automatic route with the condition that insurance company’s ownership and control remains at all times in the hands of resident Indian entities.

In banking, however, 74 per cent FDI is permitted with up to 49 per cent investment under automatic route while anything above that, under government approval route.

Sources said, like in banking, the government is now looking to raise FDI limit in insurance up to 74 per cent giving the control and management to the foreign investor. However, to ensure strong Indian presence in majority foreign owned and managed entity, the company may be mandated to appoint an Indian CEO.

The decision on changes in the FDI limit could be announced by the Department of Promotion of Industry and Internal Trade (DPIIT) soon. The Secretary, DPIIT Guruprasad Mohapatra, earlier told IANS that there are always some policy considerations going on regarding several sectors, but refused to comment on specifics.

The increase in FDI limit insurance could pave the way for foreign players, who were getting jittery without having the control in their Indian investment, to now bring in more capital, new technologies, new products and ensure better market penetration. This will also ensure that long-term funds stay invested in India.

The government is looking to overhaul the FDI policy to make it transparent and less cumbersome putting most sectors under automatic approval route with 100 per cent FDI, leaving just a small list of items where overseas investment will either be barred or restricted with approvals done by the government on a case-to-case basis.

Last year the government relaxed foreign investment norms in sectors such as brand retail trading, coal mining and contract manufacturing. In the insurance sector, the government raised FDI limit in insurance intermediaries from 49 per cent to 100 per cent. There was speculation that similar changes may be done for insurance operations in this year’s budget. But the government is looking at overhauling the FDI regime rather than focus on one sector.

For insurance, changes in FDI limit will require amendment to the Insurance Act to alter provisions pertaining to Indian ownership. Also, government will need to monitor the solvency of foreign firms so that the local business is unaffected by any challenges faced by the parent company and that they stick around to honour long-term contracts.

India has received nearly Rs30,000 crore worth of FDI in the private sector insurance firms since 2015, when the government increased FDI limit from 26 per cent to 49 per cent. Another Rs35,000 to Rs 40,000 crore could come if FDI limit is raised to 74 per cent, experts have said.

In the wake of the novel coronavirus pandemic, the Union Finance Minister Nirmal Sitharaman on Sunday said that health expenditure will be increased and health reforms will be made at the grassroots level.

Speaking at her fifth consecutive press conference regarding allocation of Rs 20 lakh crore economic package in different sectors, the minister said, “To prepare India for any future pandemic, Health expenditure will be increased and investment at the grassroots level will be ramped up for health and wellness centres, with particular focus on aspirational districts. All districts will have infectious diseases block in hospitals. Public health labs will be set up at block levels.”

Talking about the steps taken by the government so far for the containment of COVID-19 in the country, the minister said that the government has committed Rs15,000 crore for the health related measures so far for the containment of COVID-19, which includes Rs50 lakh insurance per person for the health professionals.

“More than Rs4,113 crore have been released to states,” said Sitharaman.

The finance minister said that the steps taken so far by the government included releasing Rs4,113 crore to the states, essential items worth Rs3,750 crore, Rs550 crore have been spent on testing labs and kits and Insurance cover of Rs50 lakh per person for health professionals under the Pradhan Mantri Garib Kalyan Yojana (PMGKY).

Indo-Asian News Service