Centre raises FDI cap in insurance sector to 74%

NEW DELHI: The government on Monday proposed to increase foreign direct investment (FDI) limit in the insurance sector to 74%, a move aimed at attracting greater overseas capital inflows to help enhance insurance penetration in India.

In the first paperless Union Budget, FM Sitharaman said under the new structure, the majority of directors on the board and key management persons would be resident Indians, with at least 50% of directors being independent directors, and specified percentage of profits being retained as a general reserve.

"I propose to amend the Insurance Act, 1938 to increase the permissible FDI limit from 49 per cent to 74 per cent in insurance companies and allow foreign ownership and control with safeguards," she said while presenting the Budget 2021-22. She said for investor protection, an investor charter would be introduced as a right of all financial investors across all financial products. It was in 2015 when the govt hiked the FDI cap in the insurance sector from 26% to 49%.

Life insurance penetration in the country is 3.6 per cent of the GDP, way below the global average of 7.13%, and in case of general insurance, it is even worse at 0.94% of GDP, as against the world average of 2.88%. The government has earlier allowed 100% foreign direct investment in insurance intermediaries. Intermediary services include insurance brokers, reinsurance brokers, insurance consultants, corporate agents, third party administrators, surveyors and loss assessors.

Commenting on the proposal to hike FDI to 74%, Russell Gaitonde, Partner, Deloitte India, said the decision will help attract greater foreign investment and strengthen the sector. Aatur Thakkar cofounder and Director at Alliance Insurance said an additional infusion of capital will enable growth and help insurance reach the last mile at the grass-root level.