The Modi Government set the ball rolling on its first major economic reform on Thursday. The Cabinet Committee on Economic Affairs approved the raising of Foreign Direct Investment (FDI) cap in insurance from 26 percent to 49 percent through the Foreign Investment Promotion Board route.
The government will now bring a Bill before Parliament in the current session as the Bill for the same proposal the UPA Government had mooted lapsed after the last Lok Sabha's dissolution.
Union Finance Minister Arun Jaitley had in his Budget speech proposed the raising of the FDI cap while insisting full management and control to remain with the Indian investors in insurance firms.
The insurance industry has been demanding a hike in the FDI limit for long. As insurance businesses grow so do the capitalisation needs. But insurance firms are restricted by the existing FDI cap from tapping overseas investors’ for capital while Indian investors don’t always have deep enough pockets.
The previous UPA Government had originally proposed raising the FDI cap back in 2008 when it introduced the Insurance Laws (Amendment) Bill. However, opposition from political parties, including the BJP did not allow the Bill to be taken up in the Rajya Sabha.
The Confederation of Indian Industry (CII) welcomed the decision saying it will help attracting the much needed long term capital for the sector which can have multiplier effect on the state of economy especially in meeting the huge infrastructure financing requirements ensure innovations on product design and distribution, better risk management, introducing superior technology and greater investments. “CII believes the end result will be sizeable improvement in the insurance penetration and density for the Indian economy which is considerably lower when compared with other emerging economies,” said director general Chandrajit Banerjee in a statement on the decision.