INSURANCE
Rajya Sabha approves bill to increase FDI limit in insurance sector to 74%
Mar-19-2021

The Rajya Sabha has approved a bill to increase foreign direct investment (FDI) limit in the insurance sector to 74 per cent from the current 49 per cent. On Insurance (Amendment) Bill, 2021, Finance Minister Nirmala Sitharaman said foreign investment will supplement domestic long-term resources with a view to further insurance penetration in the country. Sitharaman said the decision to increase the FDI limit to 74 per cent was taken after sector regulator IRDAI held detailed consultations with stakeholders. Currently, the permissible FDI limit in life and general insurance stands at 49 per cent, with ownership and management control with Indians.

As per the bill, the majority of directors on the board and key management persons would be resident Indians, with at least 50 per cent of directors being independent directors, and specified percentage of profits being retained as a general reserve. It was in 2015 when the government had last hiked the FDI cap in the insurance sector from 26 per cent to 49 per cent. Increase in FDI is aimed at improving life insurance penetration in the country. Life insurance premium as a percentage of GDP is 3.6 per cent in the country, way below the global average of 7.13 per cent, and in case of general insurance, it is even worse at 0.94 per cent of GDP, as against the world average of 2.88 per cent.

Sitharaman said India received FDI worth Rs 26,000 crore in the insurance sector after 2015 when the foreign investment limit was raised to 49 per cent from 24 per cent. She said insurance companies are facing liquidity pressure and that is why the government was proposing to increase the FDI limit further. She said the foreign direct investment (FDI) is aimed at supplementing the domestic long term capital. Sitharaman said hike in foreign investment limit to 74 per cent will help meet the growing capital requirement of insurance companies. The minister stressed that the bill to hike FDI limit in insurance has been brought after extensive consultations by sector regulator IRDAI.

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