FDI limits in Insurance

In News: Insurance Amendment Bill 2021 has been recently passed by Rajya Sabha.

Key Provisions of Insurance Amendment Bill 2021

• Foreign investment:
  • Increases the maximum foreign investment in an insurance company from 49% to 74%.
  • Enables “control and ownership” by foreign investors.
  • However, such foreign investment may be subject to additional conditions as prescribed by the central government.
• Investment of assets:
  • The Act requires insurers to hold a minimum investment in assets which would be sufficient to clear their insurance claim liabilities.
  • If the insurer is incorporated or domiciled outside India, such assets must be held in India in a trust and vested with trustees who must be residents of India.
  • The Bill removes the explanation given in previous Act that this will also apply to an insurer incorporated in India, in which at least:
    • 33% capital is owned by investors domiciled outside India, or
    • 33% of the members of the governing body are domiciled outside India.
  • Section 27(e): “No insurer shall directly or indirectly invest outside of India the funds of Indian policy holders.”

Benefits

• Greater Competition: FDI would mean greater competition and thus better negotiated premiums for the end user.
• Policy holder’s money is safe: The policy holder’s money can not leave Indian Shores and need to be compulsorily invested in India only as per Section 27(e).
• New Employment Opportunities: The public sector insurance firms employ only over 7 lakh persons while the private sectors have more than 23 lakh employees and agents.
  • Since the sector was opened up in 2000 by allowing 26% FDI, there has been a growth in the number of companies, insurance penetration and jobs.
  • In 2015, another amendment hiked the FDI limit to 49%which resulted in ?26,000 crore foreign investment and 12 new insurance firms in the last 5 years.
• Indian Management: As the key management will be Indian, the applicability of India laws is byond any doubt.
• Broad consultation with Stakeholders: The Insurance Regulatory and Development Authority (IRDA) had consulted 60 firms and other private players over the bill.

Criticism

• Not sent to Standing Committee: Standing committee is a place for non political and balanced discussions about any bill.
  • The bill is being passed in a hurry without enough deliberations.
• Contrasts AtmaNirbhar Bharat: Allowing foreign control and ownership is in contrast to promotion of domestic especially when there is no shortage of capital in big insurance firms of India.
• Not successful in the past: None of the insurance firms has managed to get FDI even up to the present limit of 49%.
• Grand clearance sale of National Assets: As per the opposition, this much high impetus on privatisation is detrimental for nation and Public assets built assiduously over the years.
• Undermine Policy of Reservation: Greater control of foreign firms would also mean that the policy of reservation will be undermined.
• Foreign Firms may flee in case of Bankruptcy: The foreign firms are often not subjected to Indian Laws and Regulations. Hence, their fleeing may put Indian Investments and policies at risk.

Way Ahead

• Involvement of the Standing Committee: In democracy, debates are used to build consensus. The standing committee will help the government to make more rational decisions.
• Enough Safeguards to avoid escape of Defaulters: The defaulters like Vijay Malya and Mehul Chowksy have escaped despite being an Indian and hence such loopholes must be plugged.

Source:TH