The Finance Minister Nirmala Sitharaman in the budget speech proposed to amend the Insurance Act, 1938, to increase the FDI limit from 49% to 74% in insurance companies and foreign ownership in the insurance market with safeguards.
FM proposes 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. 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 a specified percentage of profits being retained as a general reserve.
The proposed increase in FDI (Foreign Direct Investment) limit in the insurance sector will help in attracting overseas capital and would result in increased value for customers as there will be more insurance products at reduced costs. According to experts, it will also help in enhancing insurance penetration in the country.
“A more liberal FDI policy will certainly attract higher amounts of foreign capital, which will aid in increasing insurance penetration in India,” said Shardul Amarchand Mangaldas & Co. Partner Shailaja Lall.
Shailaja Lall considers this move of the government as a development with an “a pinch of salt” with a cautious approach. She added that there is a need for more clarity, it will need to be seen as to how many foreign investors are willing to infuse capital.
“Any conditionality and regulatory approvals attached to payment of dividends to foreign investors may add another level of complexity. The IRDAI may also prescribe certain conditions to safeguard policyholder money,” she said.
“The announcement to raise the FDI cap in the sector was a much-awaited move by the government. It is an indirect recognition of the requirement for significant capital inflows to provide adequate levels of insurance cover to the population,” said Deloitte India Partner and Financial Services Industry Leader Sanjoy Datta.