74% FDI cap in insurance sector is upper limit, not compulsion: FM Sitharaman

Finance inister Nirmala Sitharaman on Thursday clarified that the limit of 74% foreign direct investment (FDI) in the insurance companies is not a compulsion. Speaking in the Parliament, Sitharaman said, "FDI limit not a compulsion, it sets only upper limit."

"Increasing limit doesn't mean automatic foreign investment to that level to all companies. Every company will decide for themselves, whether they want that money, to what extent & so on. So, this enabling amendment is only to allow them to receive some money but not exceed 74%" she further explained. Rajya Sabha on Thursday passed Insurance (Amendment) Bill, 2021 to hike FDI in the insurance sector.

To attract more overseas capital inflows, finance minister Nirmala Sitharaman increased FDI limit in the insurance sector from 49% to 74% in Budget 2021. Under the new structure, the majority of directors on the board and key management persons would be resident Indians, with at least 50% of directors being independent directors, and specified percentage of profits being retained as a general reserve.

For investor protection, an investor charter would be introduced as a right of all financial investors across all financial products, finance minister said during Budget. Earlier in the month, Union cabinet gave its nod for amendments in the Insurance Act, paving way for 74% foreign direct investment in the sector.

In 2015, the government hiked the FDI cap in the insurance sector from 26% to 49%. Increase in FDI will help improve life insurance penetration in the country. "This move will help increase avenues to bring in capital inflows in order to realise the full potential of Insurance in the country. This move will help strengthen the sector and also help further penetration of insurance in the country, which still is far behind the world average," commented Shanai Ghosh, executive director and chief executive officer, Edelweiss General Insurance.

“Increase in FDI limits from 49% to 74 % for the insurance sector is a welcome step and will help insurance companies to raise funds to ensure their solvency is maintained in line with growing business needs," said Manoj Purohit, Partner and Leader – Financial Services Tax, BDO India.

Source: Live Mint