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The Government has set the ball rolling for the passage of the long pending Insurance Laws Amendment Bill 2008, which seeks to raise the foreign direct investment limit in the insurance sector to 49 per cent from the current 26 per cent.
The Finance Ministry has sent a draft note to the Cabinet, PMO, Department of Industrial Policy & Promotion, and the Ministries of Law and Justice, Economic Affairs, Expenditure, Corporate Affairs, and Commerce seeking their comments by July 8.
“The Insurance Regulatory and Development Authority was of the view that the capital requirements of insurance companies would be difficult to meet from the capital market, given that insurance companies are expected to show losses for the next five years.
“Increasing the FDI limit from 26 per cent to 49 per cent was an option available to enable Indian insurance/joint venture insurance companies to access the resources required for insurance penetration,” the letter said.
Dated June 27, 2014, the letter has the approval of the Finance Minister and will be introduced in Parliament after consent from the Cabinet.
According to the letter, in the Finance Ministry’s discussions with General Insurance Council, Life Insurance Council and insurance sector stakeholders, “it was unequivocally suggested that the sector FDI limit needs to be raised to 49 per cent from 26 per cent, ideally without qualification.
“However, if felt necessary, the Government could impose safeguards like restriction of voting rights of foreign partner to 26 per cent, requirement of CEO/majority directors being Indian, etc., for a limited duration, subject to an early review.”
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