New Delhi: The Reserve Bank of India (RI) has said there is a case for hiking FDI (foreign direct investment) cap in insurance and some other sectors in view of India’s growing integration with the global economy, if local economic and political scenario permits.
“... as the economy integrates further with the global economy and domestic economic and political conditions permit, there may be a need to relook at the sectoral caps (especially in insurance) and restrictions on FDI flows (especially in multi-brand retail),” RBI said in a study, released earlier this month, on FDI flows to India.
The study said there are certain sectors, including agriculture, where FDI is not allowed, while sectoral caps in some sectors such as insurance and media are relatively low compared to the global patterns.
“In this context, it may be noted that the caps and restrictions are based on domestic considerations and there is no uniform standards that fits all countries,” it added.
RBI said the demands for raising the present FDI limits of 26% in the insurance sector may be reviewed taking into account the changing demographic patterns as well as the role of insurance companies in supplying the required long term finance in the economy.
Commenting on the need for a higher FDI limit in the insurance sector, Monish Shah, senior director of consultancy giant Deloitte in India, told PTI that insurance is a high gestation, capital intensive business and the sector needs fresh capital to fund its existing businesses and expansion.
“Increased capital will benefit the industry as a whole by increasing the insurance access and penetration in the country.
“Increase in FDI in insurance from a strategic minority to a dominant minority is one of the reforms which is being eagerly awaited by several industry players; as despite the slowdown, Indian insurance sector remains attractive in the long term,” he added.
Noting that life insurance industry is long-term in nature and requires years of capital infusion, MetLife India’s managing director and country manager Rajesh Relan said: “Capital infusion through FDI will help grow the industry by increasing customer coverage with a range of innovate products that are clearly focused on today’s uninsured.”
He further said that growth of insurance sector would also help in developing other sectors and providing capital to the government for long-term infrastructure projects.
The RBI study found that sectoral cap was higher than India even in China for insurance and a few other sectors, while countries like Brazil and Russia have higher sectoral caps than India across most of the sectors.