Finance Minister Nirmala Sitharaman will move the Insurance (Amendment) Bill 2021 in Rajya Sabha for passing on Thursday, March 18. The bill aims to increase foreign direct investment (FDI) in the sector to 74 per cent from the current 49 per cent. The Union Cabinet had approved the amendments listed in the Insurance Amendment Bill, 2021, on March 10. It aims to amend FDI provisions under the Insurance Act, 1938.
Presently, the FDI limit in life and general insurers is capped at 49 per cent, with only Indians allowed to hold ownership and management controls. The bill, once approved, will pave the way for increasing this limit to 74 per cent.
This would be the second hike in the FDI limit for the insurance sector. In 2015, this limit was revised to 49 per cent from the original 26 per cent.
The Centre states the purpose of the amendment is "to achieve the objective of Foreign Direct Investment Policy of supplementing domestic long-term capital, technology, and skills for the growth of the economy and the insurance sector, and thereby enhance insurance penetration and social protection, it has been decided to raise the limit of foreign investment in Indian insurance companies from the existing 49 per cent to 74 per cent".
The new structure allows the majority of directors on the board and management to be resident Indians. Of these, at least 50 per cent of directors should be independent. The companies must retain a specified percentage of profit as a general reserve. The Centre also proposes to bring in a charter for investor protection.
As per the data, India is still way behind in terms of life insurance and general insurance penetration. Life insurance premium as a percentage of GDP is 3.6 per cent in the country, while the global average is 7.13 per cent. Similarly, in the case of general insurance, it is even worse at 0.94 per cent of GDP in India against the world average of 2.88 per cent.
Global ratings agency Moody's had earlier lauded the government's decision to hike the FDI limit in Indian insurance companies. Moody's said the potential for higher foreign ownership will increase insurers' financial flexibility by offering additional opportunities to bolster solvency.