FDI Limit in Insurance Sector

In News

The Union Cabinet has approved a proposal to amend the Insurance Act, 1938, paving the way for increasing the foreign direct investment (FDI) limit in the sector to 74 per cent from 49 per cent.

Key Points

• It was in 2015 when the government hiked the FDI cap in the insurance sector from 26 per cent to 49 per cent.

• The government has earlier allowed 100 per cent foreign direct investment in insurance intermediaries.
  • Intermediary services include insurance brokers, reinsurance brokers, insurance consultants, corporate agents, third party administrators, surveyors and loss assessors.

• For investor protection, an investor charter would be introduced as a right of all financial investors across all financial products.
• Under the new structure, the majority of directors on the Board and key management persons would be resident Indians, with at least 50 per cent of directors being independent directors, and a specified percentage of profits being retained as a general reserve.

Significance

• Raising the foreign investment limit in the insurance sector is expected to improve capital availability and foster competition in the sector.
• It will also develop the insurance industry as a big channel for generating durable funds for the creation of long-term assets and aid the process of economic development as India emerges out of the pandemic.
• Higher investments will help in increasing the penetration of products in an underserved market.
• Greater foreign investment will allow insurance companies to introduce a broader range of products at affordable prices.
  •  This will help increase penetration, which is just 3.71% of the GDP.

Present Status

• India recorded a 13% growth in Foreign Direct Investment (FDI) in 2020 at a time when fund flows declined most strongly in major economies such as the UK, the US and Russia.
• Amidst global collapse, China is the only other country that has shown remarkably high FDI growth.
• The measures taken by the government on the fronts of FDI policy reforms, investment facilitation and ease of doing business have resulted in increased FDI inflows into the country

Government Initiatives

• The governments have recently taken several efforts to improve ease of doing business and relaxation in FDI norms to boost FDI inflows in India.
• With the Government of India aiming to achieve US$ 100 billion worth of FDI inflows in the next two years, India can become the top recipient of greenfield FDI Inflows in the world.
• Proposal to commence the auctioning of 5G spectrum.
• National E-Commerce Policy(draft) to encourage FDI in the marketplace model of e-commerce to ensure a level playing field for all participants.
• Revised FDI rules to e-commerce allowing 100 per cent FDI in the marketplace-based model of e-commerce.
• Launch of National Digital Communications Policy, 2018 with a target of increasing FDI inflows in the telecommunications sector to US$ 100 billion by 2022.
• Removal of the need for government approval for FDI up to an extent of 100 per cent in Real Estate Broking Services.
• Strengthening the single-window clearance system for fast-tracking approval processes for Japanese investors in India.
• Doing away with the approval of the Department of Revenue and mandating clearance of all proposals requiring approval within 10 weeks after the receipt of application.

Source :IE