Govt may consider insurance FDI cap to 49%

To give a push to reforms, the government may consider raising foreign direct investment [FDI] limit in the insurance sector to 49 per cent from the existing 26 per cent.

The Cabinet will consider 49 per cent FDI in the insurance sector once again in the coming days, a senior finance ministry official said.

It is for the Cabinet to take a call on the matter, the official added. As per the current regulation, a foreign player cannot have more than 26 per cent stake in insurance companies in the country.

In its meeting held on 10 May, the cabinet had postponed a decision on FDI ceiling in insurance.
It is to be noted that the Standing Committee had rejected the government's proposal to raise foreign direct investment ceiling to 49 per cent in December last year. The committee in its report on the Insurance Laws [Amendment] Bill, 2008, had said the proposal to increase the FDI cap to 49 per cent in insurance companies seems to have been decided upon ‘without any sound and objective analysis of the status of the insurance sector following liberalisation’.

It had said that the policy stance of enabling a greater role for foreign capital in the insurance sector would not necessarily have the desired impact.

‘Increased role of foreign capital may lead to the possibility of exposing the economy to the vulnerabilities of the global market ...flight of capital outside the country and also endangering the interest of the policy holders,’ it had said.