The Government has finally paved the wave for a higher inflow of capital in the insurance sector. Finance Minister Nirmala Sitharaman, presenting the Union Budget 2021, proposed increasing the Foreign Direct Investment (FDI) limit in the insurance sector to 74 percent from the current 49 percent.
What will give further cushion to foreign investors wanting to become a part of the insurance growth story in India is that the higher FDI limit in the insurance sector has been proposed with allowed foreign ownership and control with certain embedded safeguards. Foreign Direct Investment cap in the insurance sector was first raised to 49 percent from 26 percent in March 2016, but industry experts were of the view that it did not enthuse foreign investors as they could not get management control.
In February last year, the government had amended the FDI policy to allow 100 percent foreign investment in insurance intermediaries such as insurance agents, web aggregators of insurance policies, and brokers. In the same budget speech, FM Sitharaman had said that Government will explore easing of FDI limit in the insurance sector. Insurance Regulator (IRDAI) has also backed the proposal of a higher FDI limit in the insurance sector.
The COVID-19 pandemic has shown that there is a shortage of capital in the insurance sector and industry experts believe that foreign inflow will help insurance companies prepare themselves better. Figures indicate that Rs 25,000 crore of FDI was received in the sector after the increase in the limit, only Rs 5,400 crore of additional capital infusion has happened in the sector.