A day after President Pranab Mukherjee signed an ordinance to amending the Insurance Act, Finance Ministry Saturday said that this would improve insurance accessibility in rural areas in the country.
According to the finance ministry, insurance penetration in India is very low compared to the global average and the sector is in need of capital to expand and ensure better access to insurance services, especially in rural areas.
"Enhancement of the foreign equity cap from 26 percent to 49 percent with the safeguard of Indian ownership and control is a critical aspect of the Ordinance, which will potentially enhance capital availability," the ministry said in a statement.
The ministry pointed-out that the reform will allow insurance companies to raise capital through new and innovative instruments, which would help capital intensive insurance industry to garner resources for business growth.
The Ordinance will also empower IRDA (Insurance Regulatory and Development Authority) to regulate key aspects of insurance company's operations like solvency, investments, expenses and commissions.
"The absence of such empowerment for IRDA potentially undermines faith in our regulatory framework and discourages investment in the sector," the statement said.
The ministry added that the Ordinance will also substantially enhance penalty provisions to ensure compliance with new insurance laws by companies, which is essential to uphold the consumer interest.
On Friday President Mukherjee signed the ordinances for a hike in foreign equity cap in the insurance industry from 26 percent to 49 percent.
The legislations for a hike in foreign equity cap in the insurance industry could not be taken up in the Rajya Sabha as the opposition did not allow the upper house, where the government is in minority, to conduct business during the last few days of the winter session that ended Tuesday.
A cabinet meeting Wednesday, presided over by Prime Minister Narendra Modi, decided to issue the two ordinances so as to send a strong signal that the government will pursue reforms and would not allow disruptions in parliament to come in the way.
