)
Even as a Prime Minister-chaired meeting on Tuesday gave the in-principle approval to raise the foreign direct investment (FDI) limit in the insurance sector from 26 per cent to 49 per cent through the automatic route, insurance companies are not in a cheerful mood. Reason: The contentious reform is still to be passed in Parliament.
The insurance amendment Bill, pending before Parliament for approval, proposes an increase in insurance FDI from 26 per cent to 49 per cent. Although the Arvind Mayaram committee has reiterated the proposal, it has mentioned that this amendment has to be passed by Parliament.
"It is a welcome move and shows a positive intention on the government's part. But, there still seems to be a distance to cover in terms of final announcement and execution. We hope that it is passed in Parliament," said Amitabh Chaudhry, managing director and CEO of HDFC Life.
T R Ramachandran, managing director and CEO of Aviva Life Insurance, said that while it is a positive development, the Insurance Bill will have to be ratified.
In October 2012, the Cabinet had approved a rise in the FDI ceiling in the insurance sector to 49 per cent. Earlier, a Parliament standing committee headed by Yashwant Sinha of the Bharatiya Janata Party had suggested the ceiling be maintained at 26 per cent.
While there was also a proposal to have a 49 per cent foreign investment - 26 per cent FDI and 23 per cent foreign institutional investors - this was not supported by the Opposition.
The FDI proposal for this sector is a welcome reform for insurers planning to go public. Companies plans to float initial public offers postponed their decision, owing to fears of lower valuation if the FDI cap is not raised.
According to insurance players, the issue has so far been delayed because it is not a priority for the government as the general elections are due in 2014. Last week, Planning Commission Member Arun Maira had said that big-ticket reforms were not the priority at present, adding it would be difficult to pass contentious reforms.
