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Increase in foreign direct investment limit in the Insurance sector: Magma HDI General Insurance

FDI in insurance on a direct basis and did not need any FIPB clearance but it seems for the increase amount FIPB.

July 11, 2014 12:51 IST | India Infoline News Service
The Union Finance Minister in his Budget has set the ball rolling for an increase in foreign direct investment limit in the insurance sector to 49 per cent from the current 26 per cent.

Finance Minister said, "The Insurance sector is investment starved. Several segments of the Insurance sector need an expansion. The composite cap in the Insurance sector is proposed to be increased up to 49 per cent from the current level of 26 per cent, with full Indian management and control, through the FIPB route"

While, the long-pending Insurance Laws Amendment Bill, 2008, proposes an increase in foreign holding in insurance joint ventures to 49 per cent from the existing 26 per cent with corresponding voting rights, it appears that the Indian Management and Control would mean restriction of voting rights as well.

This far the FDI in insurance was on a direct basis and did not need any FIPB clearance, now it seems for the increase amount FIPB would get involved. We therefore would need to once again understand the process in this respect.

Other than the fact that there seems to be a concerted effort to build road and alternate energy infrastructure, steps to enthuse fresh investment momentum in industry are not very clear. There also does not seem to be any road map or statement on disinvestment process other than the announced PPP model in railways. From an insurance point of view whenever disinvestment happens there is additional risks available for insurance in terms of either the new owner putting in additional capital to upgrade facilities or new risks actually coming on the market.

The author is Swaraj Krishnan, MD & CEO, Magma HDI General Insurance.

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