GOVT MAY EASE FDI NORMS FOR INSURANCE COS IN THIS BUDGET
NEW DELHI: The government may remove several procedural impediments in attracting foreign direct investment (FDI), and allow up to a 74% overseas stake in the insurance sector as it prepares a budget that is counting on FDI emerging as a key source of non-debt finance, two officials close to the development said.
The FDI policy is under review. Some sectors such as financial technology, financial services and insurance have huge potential to attract greater overseas investment and the budget, to be unveiled on February 1, could contain directives facilitating FDI in various areas, the officials said.
“After liberalising FDI in insurance intermediaries, the government is considering raising foreign investments in insurance companies. It is one of the key demands of various global investors. There are some views to initially increase the cap on the insurance company to 51%, which could be later raised to 74%,” one of the two officials, who works in economic ministry, said.
In February last year, the government had amended the FDI policy to allow 100% foreign investment in insurance intermediaries such as insurance agents, web aggregators of insurance policies and brokers. The FDI cap on insurance companies remained at 49%.
Experts said FDI cap on insurance company was first raised from 26% to 49% in March 2016, but it did not enthuse foreign investors who wanted management control with at least a 51% stake. “The last hike did not generate the required inflow due to the lower rights [in managing a company’s affairs] to the foreign partner,” Nilaya Varma, co-founder and CEO of consulting firm Primus Partners, said.
Ideally, the FDI limit in insurance firms should be raised to 74% to attract significant interest from global investors, Varma said. “The Indian insurance sector needs urgent fund infusion. There is very limited domestic appetite to provide funds currently, as banks and other financial institutions are managing the impact of the pandemic on their portfolios,” Varma added.