Financial sector panel may take FDI out of Irda Act

FDI in the Act has delayed the issue of raising the 26% cap for pvt insurers, as it requires govt nod.

The issue of taking out foreign direct investment (FDI) from the Insurance Regulatory and Development Authority (Irda) Act of 1999 is not entirely a closed chapter. A new panel formed to rewrite financial laws in sync with the modern-day requirements may take up the matter, so dear to the insurance industry.

“That is an issue that may be flagged and examined,” Financial Sector Legislative Reforms Commission (FSLRC) Chairman Justice B N Srikrishna told Business Standard.

The government had last week set up a 10-member FSLRC to rewrite and clean up financial sector laws in tune with current times.

FDI in the Irda Act has delayed the issue of raising the FDI cap in private insurers from 26 per cent to 49 per cent, since it requires a nod from Parliament.

The proposal was mooted by previous finance minister P Chidamabaram in his Budget speech for 2004-05 — the first Budget of the UPA government.

The then government could not dare table the Bill as long as the Left Front was supporting the ruling coalition. It was only when the Left withdrew its support in 2008 over the Indo-US nuclear deal that the government could table the Bill in the Rajya Sabha. The Bill was then referred to the Standing Committee on Finance, where it has been pending since then.

Taking lessons from the delay, the government has kept FDI out of the purview of the revised version of the pension reforms Bill, introduced in the Lok Sabha in the just-concluded Budget session.

The Pension Fund Regulatory and Development Authority Bill said the foreign investment policy for pension sector intermediaries would be determined and notified outside the proposed legislation, under the Foreign Exchange Management Act of 1999.

The earlier version of the Bill, tabled in 2005, had proposed to keep the issue of FDI within the ambit of the legislation.

To a query on whether the financial sector legislation would be rewritten in a way so that they were easily understood by investors, particularly the foreign ones, Srikrishna said, “Yes. That, too, could be considered.” Foreign investors have for too long been complaining about the 26 per cent FDI cap in the insurance sector, as foreign players would be able to increase their investments in their Indian joint ventures if the FDI limit is increased. “Greater foreign investments would help in training and skills upgrade of the agents. Raising the FDI cap will enable expertise and know-how transfer that are generally not available under the current regime,” said industry chamber CII in one of its papers.

There are 24 general insurance companies and 23 life insurers in the country after the sector was opened in 2000. Foreign players such as Prudential Plc, ING Group, Allianz and Aviva are already present here with their Indian partners.

Despite the FDI cap limit at 26 per cent, the insurance sector is growing at 15-20 per cent. Together with banking services, insurance services add about seven per cent to the country’s gross domestic product.