Nine months after it came to power on the promise of unleashing India’s economic potential and turning the country into a dream destination for global investment, the Narendra Modi government took a major leap in that direction by further opening up the insurance sector.
After a four-hour debate, the Rajya Sabha (Upper House), which is the Upper house of the parliament approved the Insurance Laws (Amendment) Bill, 2015 that would raise Foreign Direct Investment (FDI) cap in the insurance sector from 26 per cent to 49 percent. The Lok Sabha (House of the People) had passed the legislation on March 4. The Government estimates that the passage of the Bill will bring in foreign capital to the tune of Rs 25,000 crores ($4.2B) into the insurance sector. The bill replaced an ordinance promulgated in December 2014.
A report of the Select Committee of parliament has shown that to increase insurance penetration from existing three per cent to six per cent, India will require around Rs 40,000-50,000 crore ($6.7B-$8.4B). The bill passed on Thursday will bring in 49 per cent (Rs 25,000 cr) of this amount as FDI.
Incidentally, countries like the UK, Japan and Australia have permitted 100 per cent FDI in the insurance sector. Several states in the US have also allowed 100 per cent FDI inflow in the sector. Indonesia (80 per cent), Malaysia (51 per cent) and China (50 per cent), are also ahead of India.
The passage of the bill will come as a big relief for the Government, which is a minority in the Upper house. However, the main opposition Congress and some regional outfits extended support to the Government making it possible to introduce the much-delayed reform in the insurance sector.
Talking to this correspondent Select Committee Chairman of the Insurance Bill, Chandan Mitra, of the ruling Bharitya Janata Party said that the passage of the bill will send the right signal to the global business community that India was ready to carry out all necessary reforms to encourage foreign investors.
Claiming that foreign funds will help the country which is under-insured at present, Mitra said, “ Foreign funds were needed for the growth of the insurance sector and increasing its coverage of the rural areas,” he said, adding the country’s insurance sector has grown since 26 per cent FDI was allowed way back in 1999.
“The collection of premiums has touched Rs 3,64,420 crores ($30B) now as compared to mere Rs 19,513 crore in 1999,” he said.
Mitra said that several studies have shown that the country ‘s insurance sectors needs Rs 44,500 crore, and raising the FDI cap will bring Rs 21,805 crore funds into the sector. As per the Bill, the foreign investors will not be allowed to take the premium out of the country.
The Government hopes that opening up of the insurance sector will change the nature of insurance which is mainly confined to the coverage of life risk. Several policy makers have pointed out that the foreign investor will offer new and innovative schemes to benefit farmers and labour class and bring in much needed flow in case of health insurance.
After the raising of the FDI cap, foreign companies like France’s AXA and UK’s Bupa and others are expected to raise their investment limit in their Indian partners.
Indian insurance companies have hailed the decision. In a statement, Bharti Group Chairman Sunil Bharti Mittal said “this is a positive development which will bring the much-needed investments for the growth of the insurance industry.”
Mittal said France’s Axa will “step up their equity investment to 49 per cent. Bharti will soon move the application to FIPB (Foreign Investment Promotion Board) as per the new FDI guidelines”.
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