The Hindu Business Line : Insurance FDI cap at 49 pc likely

The Ministry of Finance has given its go-ahead to the Department of Industrial Policy and Promotion (DIPP) to process papers to hike the FDI cap for the entire insurance sector from the existing 26 per cent to 49 per cent.

The decision to go in for a blanket hike to 49 per cent across all segments including life insurance, non-life insurance and the reinsurance companies come after the Government had at one point considered a proposal to limit the hike only for reinsurance companies.

Top Finance Ministry officials said that move is a follow-up of the N.K. Singh Committee report on FDI that had suggested hiking insurance cap to 49 per cent. "We have agreed with the recommendation of the N. K. Singh Committee. We have sent our comments to the DIPP which would now take the proposal further," officials said. The department is the nodal body for processing proposals for alterations in sectoral FDI caps.

The department would now be required to move the Group of Ministers on insurance for its approval of the proposal before taking it to the Cabinet. A hike in the insurance cap would ultimately require an amendment to the Insurance Regulatory and Development Authority (IRDA) Act, 1999.

A couple of months earlier, the Ministry had been toying with the idea of initiating the process of hike in FDI by limiting it to the reinsurance sector. It was being debated within the Ministry that the 26 per cent cap was the major stumbling block because of which no private reinsurance company had yet been set up, besides the national reinsurer - the General Insurance Corporation of India.

With the minimum capital requirement for reinsurance companies being Rs 200 crore (which is double the capital requirement for life and non-life companies), no Indian partner has been willing to bring in 74 per cent of that amount (a minimum of Rs 148 crore) so far.

However, now the Government has decided not to adopt a piece-meal approach to the issue and go in for a comprehensive review of the cap. "Since the cap is for the entire insurance sector, it is better to seek an amendment across-the-board," officials said.

Raising the cap to at least 49 per cent has been one of the major demands of the insurance industry. The industry has been arguing that the cap is limiting investment by not allowing foreign partners to have a greater say in the insurance companies' affairs.

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