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"The insurance sector is investment starved," said the FM, citing the reason for a need for additional capital in the industry. However, industry experts said that this would need approval from the Parliament through the passage of the Insurance Bill.
He said that this will through the FIPB route.
Earlier this year, the the department of industrial policy and promotion (DIPP) had said that foreign institutional investors (FII) and non-resident Indians (NRIs) can now invest in the insurance sector, within the overall 26% cap on foreign direct investment (FDI).
Currently up to 26% FDI is permitted in the sector. In a press note, DIPP has said that apart from insurance companies, the relaxation would apply to insurance brokers, third-party administrators (TPAs), surveyors and loss assessors. All of this investment can be made under the automatic route.
The Arvind Mayaram committee on definition of FII and FDI, in its draft report, had also suggested composite caps whereby FDI, FII and NRI investments would form part of the total cap on foreign investments.
In a meeting with insurance companies in New Delhi today, finance minister Arun Jaitley discussed the 49% Foreign Direct Investment (FDI) limit hike in the sector which has been proposed.
When the Insurance Bill that 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% through foreign institutional investor (FII) route and 26% through FDI. However, the Parliament was unable to arrive at a consensus.
The former United Progressive Alliance (UPA)-led government had also looked at hiking FDI in insurance to 49%, without any increase in voting rights. This, however, was not accepted by the other parties. Forty-nine% FDI for insurance and pension was mooted when Pranab Mukherjee was the finance minister, but the decision to approve the proposal was deferred by the Cabinet.
