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Finance Ministry approves proposal for 49% FDI in insurance

Parliamentary Panel recommendations are not binding on the government

August 23, 2012 10:56 IST | India Infoline News Service
The government has decided to stick with its earlier decision of increasing foreign direct investment (FDI) in the insurance sector to 49% from the current 26%. This is despite the Standing Committee on Finance rejecting the government’s proposal to raise the FDI limit in insurance companies to 49%.

Parliamentary Panel recommendations are not binding on the government. Finance Minister P Chidambaram on 21st August reviewed the proposals in the Insurance Laws (Amendment) Bill, 2008 and decided that the FDI cap of 49%, as proposed, should be retained, according to media reports.

The Standing Committee had rejected the government's proposal to raise FDI limit to 49% in December 2011. The Committee in its report on the Insurance Laws (Amendment) Bill had said the proposal to increase the FDI cap to 49% in insurance companies seems to have been decided upon “without any sound and objective analysis of the status of the insurance sector following liberalization”.

It had said that the policy stance of enabling a greater role for foreign capital in the insurance sector would not necessarily have the desired impact.

“Increased role of foreign capital may lead to the possibility of exposing the economy to the vulnerabilities of the global market ...flight of capital outside the country and also endangering the interest of the policy holders,” it had said.

However, the Panel had agreed on the need to bring in comprehensive changes to the archaic insurance sector laws.

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 government had introduced the Insurance Bill in the Rajya Sabha in December 2008 with an aim to bring improvement and revision of laws relating to insurance business in the changed scenario of private participation.

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