Cabinet approves up to 20 per cent FDI in LIC under automatic route

The Union Cabinet on Saturday approved amendment in the Foreign Direct Investment (FDI) policy to facilitate FDI up to 20 per cent in IPO-bound Life Insurance Corporation of India Limited.

“FDI up to 20 per cent under the automatic route is being allowed in LIC,” a government source told BusinessLine. Other minor enhancements in the existing FDI Policy have also been carried out in order to provide an updated, consistent and easily comprehensible FDI framework, he added. “The FDI policy reform will further enhance Ease of Doing Business in the country, leading to larger FDI inflows and thereby contributing to growth of investment, income and employment,” he said.

The government has approved listing of shares of LIC, which is a statutory corporation established under LIC Act, 1956, on the stock market through an IPO by part-sale of government stake in it and raising fresh equity capital for LIC .

Ease of doing business

It was felt that foreign investors may be desirous of participating in the IPO of LIC, but the existing FDI policy did not prescribe any specific provision for foreign investment in the corporation. Hence, the amendment was called for. As per the FDI Policy, FDI in permitted sectors is allowed up to the limit indicated against each sector/activity subject to applicable laws/regulations.

According to another source, ‘insurance’ is a permitted sector under FDI policy. However, the FDI policy currently lists only “Insurance Company” and “Intermediaries or Insurance Intermediaries” under the “Insurance” sector. LIC being a statutory corporation, is not covered under either “Insurance Company” or “Intermediaries or Insurance Intermediaries”. Further, no limit is prescribed for foreign investment in LIC under the LIC Act, 1956; the Insurance Act, 1938; the Insurance Regulatory and Development Authority Act, 1999 or regulations made under the respective Acts.

“Since, as per present FDI policy, the FDI ceiling for public sector banks is 20 per cent on government approval route, it has been decided to allow foreign investment up to 20 per cent for LIC and such other bodies corporate. Further, in order to expedite the capital raising process, such FDI has been kept on the automatic route, as is in the case of rest of the insurance sector,” the source explained.

Listing the benefit of the minor enhancements in the existing FDI policy, the source said it would facilitate foreign investment in LIC and other such bodies and help the government in its objective of disinvestment where required. “The reform will facilitate ease of doing business and lead to greater FDI inflows. At the same time, it will ensure alignment with the overall intent/objective of FDI Policy. Increased FDI inflows will supplement domestic capital, technology transfer, skill development for accelerated economic growth and development across sectors, to support the implementation of Atmanirbhar Bharat,” he said.

FDI inflows on the rise

FDI inflows in India stood at $45.15 billion in 2014-15 and have increased since then. Despite the Covid-19 pandemic, India attracted the highest ever FDI inflows of $81.97 billion during the financial year 2020-21 and this is 10 per cent higher compared with the previous financial year 2019-20 ($74.39 billion). “These increasing trends in India’s FDI are an endorsement of its status as a preferred investment destination amongst global investors,” the source said.

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