Lack of mention of more liberal FDI rules surprises insurance sector

Players in the insurance sector in India have expressed surprise that more liberal foreign direct investment (FDI) rules in the industry failed to gain any mention in the Budget 2020-21 which was unveiled last week.

The government's silence on the issue is unexpected because officials had been working on the proposal for six to eight months, reported The Indian Express. A government document had proposed that FDI up to 74% should be allowed with necessary government approvals, above the current 49% limit permitted under a so-called automatic-approval route.

The domestic insurance industry had eagerly waited for Finance Minister Nirmala Sitharaman to raise the FDI ceiling in her Budget speech on 1 February.

The government last year allowed 100% FDI in insurance intermediaries like brokers and third party administrators, as a precursor to the hike in the FDI cap to 74% for insurers.

“The timing for such a move was quite ripe as not only does the government want a larger FDI inflow into the country, the private sector insurance industry also is badly in need for capital to maintain growth,” said an official.

The Life Insurance Council, in a pre-Budget survey, had found that all life insurance players favoured the higher FDI ceiling of 74% and some even wished for 100%.

Source: Asia Insurance Review