India relaxes investment in the Insurance sector

Indian government allows up to 49% investment in insurance sector
Indian government allows up to 49% investment in insurance sector

Navin Upadhyay

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.

Percentage of Foreign investment in countriesThe 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”.

Navin is a senior journalist with years of experience in covering India’s Capital city. His keen observations and ability to create the big picture from disparate pieces of information is invaluable.
Navin Upadhyay


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