Govt. okays 49 pc FDI in insurance

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SME Times News Bureau | 24 Jul, 2014
The union cabinet Thursday approved a proposal to increase foreign direct investment (FDI) limit in the insurance sector to 49 percent from the current 26 percent.

The Cabinet Committee on Economic Affairs (CCEA) chaired by Prime Minister Narendra Modi okayed the proposal for the hike but maintains Indian management control.

A senior government official who did not want to be named said the overseas investments in the insurance sector would be allowed through the Foreign Investment Promotion Board (FIPB) route.

In the budget for 2014-15 presented earlier this month, Finance Minister Arun Jaitley had proposed to hike the overseas investment limit in the insurance sector to 49 percent.

Welcoming the government's move, Confederation of Indian Industry (CII) director general Chandrajit Banerjee said the increase in FDI limit “will help attracting the much needed long term capital for the sector which can have multiplier effect on the state of economy especially in meeting the huge infrastructure financing requirements".

Capital infusion in the insurance sector, through greater FDI, would ensure innovations on product design and distribution, better risk management, introducing superior technology and greater investments.

CII said the end result will be sizeable improvement in the insurance penetration and density for the Indian economy which is considerably lower when compared with other emerging economies.

Meanwhile apex industry body PHD Chamber has called it inspiring and said it would go a long way to rebuild investment sentiments in the country.

"There is a strong need to channelize the household savings from physical assets to financial assets and allowing FDI in pension sector and enhanced cap in insurance sector will facilitate financial sector vis-à-vis strong financial infrastructure," said Sharad Jaipuria, President, PHD Chamber of Commerce & Industry.

FDI in insurance sector will also strengthen the capital flows in the coming time. Long-term capital investments in insurance industry and pension sector would be critical to protect human life and to boost infrastructure, he said

Cap on foreign direct investment in insurance has been raised from 26 percent to 49 percent, and pension sector has been allowed by 26 percent FDI.