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Budget 2021: Mega boost! Govt to increase FDI from 49% to 74% in insurance
- In 2015, the government hiked the FDI cap in the insurance sector from 26% to 49%
- The COVID-19 pandemic has shown that further penetration of insurance in India is needed and for that capital infusion is required, said expert
To attract more overseas capital inflows, finance minister Nirmala Sitharaman on Monday increased the foreign direct investment (FDI) limit in the insurance sector from the existing 49% to 74%. "I propose to amend the Insurance Act, 1938 to increase the permissible FDI limit from 49% to 74% in insurance companies and allow foreign ownership and control with safeguards," finance minister said while presenting the Budget 2021-22.
In 2015, the government hiked the FDI cap in the insurance sector from 26% to 49%. 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, Manoj Purohit, Partner and Leader – Financial Services Tax, BDO India, “To ease access of finance and augment funds for the infra sector, the proposal of providing FPIs an entry into debt financing of REITs and InvITs will open up a large source of fresh funding for the infrastructure and real estate sectors. This will also open up a new avenue for FPIs to invest in a growing market like India.”
“Increase in FDI limits from 49% to 74 % for the insurance sector is a welcome step and will help insurance companies to raise funds to ensure their solvency is maintained in line with growing business needs. This will also augment foreign inflows and help attract more foreign companies,” he added.
Life insurance penetration in the country is 3.6% of the GDP, way below the global average of 7.13%. For general insurance, it is even worse at 0.94% of GDP, as against the world average of 2.88%.
The COVID-19 pandemic has shown that further penetration of insurance in India is needed and for that capital infusion is required. The FDI hike will give the foreign promoter an opportunity to buy out their cash-strapped Indian partners if required and provide the needed cash infusion," Vighnesh Shahane, managing director and chief executive officer, Ageas Federal Life said.
Commenting on the announcement, Shanai Ghosh, executive director and chief executive officer, Edelweiss General Insurance said, "This move will help increase avenues to bring in capital inflows in order to realise the full potential of Insurance in the country. This move will help strengthen the sector and also help further penetration of insurance in the country, which still is far behind the world average.”
"The increase in cap is good for a new entrant but not really a game changer for existing companies because most large companies don't really need the capital from foreign investors," believed Naval Goel, chief executive officer and founder of PolicyX.com.
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First Published:1 Feb 2021, 11:56 AM IST
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