The limit on foreign direct investment
(FDI) in Indian insurance companies will be lifted from 49 per cent to 74 per cent, said Finance Minister Nirmala Sitharaman
on Monday in her Budget speech for 2021-22, accepting a demand the industry had proposed for long.
The law presently says an Indian insurance company has to be "Indian-owned and controlled". This gives the Indian partner the right to appoint a majority of directors or control the management of a company. The Insurance Act will be updated to allow foreign ownership in insurance with safeguards.
Check Budget latest news here
“The announcement by the government in today’s Union Budget to increase FDI in insurance companies to 74 per cent from 49 per cent is a move in the right direction. Insurance is a capital-intensive business and post the pandemic--many Indian partners are not in a position to invest further capital in their companies. Certain companies also require capital infusion to conserve solvency margins,” said Vighnesh Shahane, managing director and chief executive officer at Ageas Federal Life Insurance.
“The Covid-19 pandemic has shown that further penetration of insurance in India is needed and for that capital infusion is required. The FDI hike will give the foreign promoter an opportunity to buy out their cash-strapped Indian partners if required and provide the needed cash infusion”, he said.
Anuj Shah, Partner, Khaitan & Co said, “This one reform that overhaul the insurance sector with its newly found tail-wind of foreign capital and know-how. The finance minister has also proposed that foreign ownership and control (which was not available until now) will be permitted with safeguards. While, we await to see the final notification, this is indeed a very welcome move for the insurance sector”.
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.