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Cabinet Approves Bill to Raise FDI in Insurance Sector to 49%

The Cabinet cleared a parliamentary committee’s recommendations for a composite cap of 49 per cent on foreign investment in insurance in a report tabled in the Rajya Sabha. The foreign investment in insurance includes foreign direct investment and foreign portfolio investments.

The select committee headed by Chandan Mitra had in its report recommended 110 amendments to the Bill. In order to win Congress support, it had adopted 88 amendments by the Congress earlier. Support of the Congress will be critical in the Rajya Sabha where the NDA is in minority.

The 49 per cent FDI that the Indian government proposes will be a composite cap – which means that foreign capital can flow in either as direct investment or via the portfolio route, or as a combination of both. So foreign investors can either directly buy equity from the company or can buy shares on the stock market. The new measures will allow insurance companies to list on stock exchanges. Barring public sector insurance companies, all other insurance companies will potentially benefit from a higher FDI cap.

The Bill provides that management must remain with Indian companies. And the approval of the Foreign Investment Promotion Board (FIPB) will be needed on any investment over 26 per cent.

Insurance was opened up to the private sector in 2000 with the Insurance Regulatory and Development Authority (IRDA) Act, 1999. From seven then, the number of companies operating in the life, non-life, and re-insurance segments has gone up to 53.