Increasing FDI cap to 49% in insurance will boost capital inflow: Experts

The Budget proposal to raise Foreign Direct Investment (FDI) cap in the insurance sector to 49 % is a positive step and will increase the capital inflow, say industry experts.

"Its a very positive announcement and we have been expecting it for a long time. This will boost the industry in terms of capital infusion and employment generation.

"The insurance companies were waiting for this relaxation and now this will encourage companies to enter the capital markets," HDFC Life CFO Vibha Padalkar told PTI here.

The decision will help the new entrants who are cash-starved and struggling for growth.

"The insurance sector is a very cash intensive sector that needs a lot of capital infusion. This decision will help all those new and mid to small companies who are struggling for growth. The industry is likely to see a fund inflow of USD 10-15 billion conservatively, it might be double of this," she added.

Finance Minister Arun Jaitley, while presenting the Budget for 2014-15, today proposed to increase the composite cap of the insurance sector to 49 % from the current level of 26 % with full management and control through the FIPB route.

Echoing similar views, Bharti AXA General Insurance Managing Director and CEO Amarnath Ananthanarayanan said the overall direction of increasing FDI is good as it will increase capital investment in the insurance sector.

Raising the exemption limit for investment in financial instruments under Section 80C to Rs 1.5 lakh from Rs 1 lakh is also likely to increase investment by the policyholders, he said.

Financial consultants EY India Partner, Tax and Regulatory Services, Anish Thacker said FDI in the insurance sector has been proposed to be increased to 49 % with full Indian management and control under the FIPB route.

"These may not exactly be in line with industry expectations but the attempt to provide funds for the capital intensive industry needs to be acknowledged," he added.