On 10th May, the union cabinet postponed a decision on modifications to the Insurance Amendment Bill. According to the Cabinet, foreign direct investment (FDI) is already at 26% in Indian insurance companies, therefore is no urgency to increase the investment to 49% and approve the Bill.
Finance minister Pranab Mukherjee said that modifications in the Bill have been postponed because 26% FDI is already permitted. The Bill will be taken up later suggesting that the government may try to build a consensus to increase the FDI limit in the sector to 49%.
Foreign insurers and their domestic partners have been demanding an increase in the FDI limit to 49% to fund business expansion.According to the current regulation, a foreign insurer cannot have more than 26%stake in private insurers in India.
The Standing Committee had rejected the government’s proposal to raise FDI limit to 49% in December 2011. According to the Committee,the increased role of foreign capital may lead to the possibility of exposing the economy to the vulnerabilities of the global market. Also, funds would flow outside India and endanger policyholders’ interest.
The government had introduced the Insurance Laws (Amendment)Bill, 2008 in the Rajya Sabha in December 2008 to update the sector law and increase the foreign participation in the sector by lifting the FDI limit.
The finance ministry had argued that an increase in the FDI limit will help step up investment. The former finance minister and BJP leader Yashwant Sinha headed Standing Committee on finance had in its recommendation on the Bill said there was no need to increase the FDI limit in the sector.
The other recommendation that the industry is keenly watching is about the re-insurance sector to be opened to foreign players for branch operations. If this is cleared, it would help foreign reinsurers such as Lloyds to freely operate in India. This will also make re-insurance pricing competitive, reducing the cost of Indian insurers.
Another suggestion that has been made pertains to third-party liability in motor insurance. The committee believes this should be limited to Rs. 10 million in case of death or bodily injury. Currently, the third-party liability is unlimited.