Officials in New Delhi are considering a proposal to raise the foreign direct investment (FDI) limit in the insurance sector from 74% to 100%, ToI reported on August 19. This initiative has the support of the Insurance Regulatory and Development Authority of India (Irdai), but it will require political approval since amending the Insurance Act is necessary, said the report (by Sidhartha).
The proposal seeks to further open the insurance sector to foreign investors by raising the current cap. Discussions are also underway to ease other FDI regulations, such as the requirement for certain top management roles to be held by Indians. Officials indicate that comprehensive amendments to the law are being prepared, but the timing for introducing the bill is still uncertain.
Officials noted that since most large Indian companies have already invested in insurance, it’s time to permit 100% FDI. Many well-funded foreign players are interested in entering the market but struggle to find suitable domestic partners.
A higher FDI limit would especially benefit the long-term, capital-heavy life insurance industry. Since the sector requires continuous investment to meet regulatory solvency requirements before achieving profitability, only financially strong promoters can effectively enter and sustain operations in this field.
“It’s been nearly 25 years since the sector was first opened up. Despite an increase in the FDI limit, prominent Indian players continue to thrive. There is no significant threat, especially with detailed regulations and close supervision by the regulator,” a source remarked. Foreign investments and repatriation are also subject to multiple safeguards.
A senior finance ministry official indicated that discussions on legal amendments with Irdai are progressing and are expected to be finalized soon.
Given the BJP’s current position in the Lok Sabha, which is below the majority threshold, securing political approval will be essential. However, it is expected that NDA allies will support the plan.
The initiative to raise the FDI limit in insurance aims to attract larger foreign investments by capitalizing on the interest of well-funded foreign entities eager to enter the Indian market. This aligns with the broader objective of liberalizing consumer-oriented sectors, as insurance remains one of the few areas still partially restricted for foreign investment.
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