Govt officials are discussing a proposal to increase the foreign direct investment (FDI) limit for insurance to 100%, from the current 74%, a move which has the backing of the regulator, but will need political clearance since it involves an amendment to the Insurance Act.
Besides, other proposals to ease FDI rules for the sector, such as the mandate to have Indians in certain segments of the top management, are also being reviewed, officials said. Apart from FDI, a comprehensive set of amendments to the law are also proposed although the timing of the bill is yet to be decided. The department for promotion of industry and internal trade, too, is undertaking a review of the sectoral norms and the rules to ensure that investments come unbridled.
Insurance is among one of the consumer-facing sectors that remains only partially open to FDI, while other sectors have all moved on.
Given that most large Indian companies and conglomerates have already invested in the insurance sector, officials said, it is time to allow 100% FDI in the sector since several foreign players with deep pockets are willing to come into the country but are not able to find a matching domestic player.
A100% limit will be especially beneficial for the long-gestation life insurance business where the promoter needs to keep capitalising the company to meet the solvency norms prescribed by the regulator. As a result, only promoters with deep pockets can enter space as it requires a constant flow of funds till the company starts generating profits.
“It is almost 25 years since the sector was opened up and despite an increase in the limit, we still have strong Indian players in the business. There does not appear to be any threat especially when there are detailed guidelines and the regulator keeps a close watch on all the players,” a second source said.
