Business Today

Budget 2014-15: FDI cap hike to 49% brings relief to insurance sector

Insurers have welcomed the move considering it would lead to product innovation, better customer service mechanism and higher insurance penetration in the country. 

twitter-logo Teena Jain Kaushal        Last Updated: July 10, 2014  | 20:24 IST

Finance minister, Arun Jaitley, has proposed to increase the foreign direct investment (FDI) limit to 49 per cent from the current level of 26 per cent.  There is, however, a rider that management and control of the company will remain with the Indian partner.

Currently, Indian promoters are finding it difficult to continue investing additional capital required for growth. Experts say, 49 per cent increase should be positive and will help the industry to gain additional Rs 7,800 crores. According to data on the website of Life Insurance Council, an umbrella body of life insurers, as on March 2013, insurers have deployed around Rs 34,200 crore as capital in the life insurance industry.

However, unlike the existing automatic route, the additional investment has to follow the Foreign Investment Promotion Board (PFIPB) route.

Girish Kulkarni, managing director and chief executive officer of Star Union Dai-ichi Life, says, "The move will help the industry, particularly existing players-old and middle-level companies. With tax sops let's hope its a beginning of "acche din (better days)" for the life insurance industry."

Insurers have welcomed the move considering it would lead to product innovation, better customer service mechanism and higher insurance penetration in the country. 

Anoop Pabby, managing director & CEO, DHFL Pramerica Life, says, "From an insurance industry standpoint, the increase in the FDI cap in insurance will bring in the requisite growth capital from foreign promoters and will help deepen penetration of insurance solutions in the Indian rural markets."

KK Mishra, managing director and chief executive officer, Tata AIG General Insurance, says, "This is a welcome initiative. Once approved, this would encourage foreign investment and will further augment free flow of knowledge and intellectual cross-fertilisation,  benefiting the insurance sector as a whole; right from product innovation, distribution and in building robust customer service mechanisms."

Industry experts, however, accept that for greater impact the increase in FDI should not have come with any riders attached.

Deepak Mittal, managing director and chief executive officer, Edelweiss Tokio Life Insurance, says, "Increasing the limit promises an immediate FDI inflow. However, for greater impact, the increase in the cap should not have been riders attached. Growth of insurance will also have the spillover benefit of increasing investments in government debt and Infrastructure."

Tarun Chugh, managing director and chief executive officer, PNB MetLife, says, "Increase in foreign direct investment in the insurance sector has been a topic of discussion for a long time, and while we await the full details of the proposal, we are encouraged by today's announcement. "

 

 

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