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In a meeting with private sector insurance companies in New Delhi on Thursday, Finance Minister Arun Jaitley discussed the 49 per cent foreign direct investment (FDI) limit rise in the sector which has been proposed. Insurance industry sources said while a final decision has not been taken on the issue, the consensus was the foreign institutional investor (FII) route would be easy to implement in the country.
Insurance companies said since there was opposition from certain parties and individuals on hiking the FDI cap, it has been suggested by the minister to bring out a balanced proposition on this issue, acceptable to all parties.
“The government is concerned about our interests and want investments in the sector to go up. However, at this juncture having an FII element seems to be a workable solution,” said an insurance company chief executive.
When the insurance Bill was first introduced in Parliament in 2008, it faced huge opposition because of the FDI proposal. There were various routes proposed, including models like 23 per cent through the FII route and 26 per cent through FDI. However, Parliament was unable to arrive at a consensus.
The previous United Progressive Alliance (UPA)-led government had also looked at hiking FDI in insurance to 49 per cent, without any increase in voting rights. This, however, was not accepted by the other parties. Forty-nine per cent FDI for insurance and pension was mooted when President Pranab Mukherjee was the finance minister, but the decision to approve the proposal was deferred by the Cabinet.
Bancassurance and the issue of banks becoming insurance brokers were also discussed in the meeting on Thursday. Insurance company executives, however, said since there are very opposing views in the industry about this, the minister would take it up as an immediate priority and would decide upon it later.
In December 2013, public sector banks were sent a letter by the finance ministry (then headed by P Chidambaram) that they would be required to become insurance brokers so that they could distribute products of multiple companies through their branch network. However, this proposal received flak especially from those public sector banks that were promoters of insurance companies. Following this, the directive was not implemented.
The insurance regulator too, has said it would be in the interests of the industry as a whole that banks be mandated to become insurance brokers. At present, banks are permitted to sell products of only one life, one non-life and one health insurer each.
Among other issues discussed on was the tax incentives for the life insurance industry in the Union Budget that will be presented in July. Sources said the FM made it clear there would not be any tax breaks in the immediate future, since the government did not want to compromise on its tax income. Insurers had sought additional tax relief and higher ceilings for tax incentives for policyholders.
The industry has also sought the raising tax break limit for the sector for encouraging investment and there were some suggestions of raising the tax exemption limit from the existing Rs 15,000 per year.
