The Insurance Laws (Amendment) Bill, which aims to increase the flow of foreign investment into the capital-starved insurance industry, is now just a step away from getting into the statute books. The Bill was first introduced in Parliament way back in 2008 but failed to receive support from parties across the political spectrum, including from the BJP, which now heads the government. The Rajya Sabha select committee, which went into the provisions in detail and whose report was tabled in Parliament on Wednesday, has recommended a 49 per cent composite cap on foreign investment while retaining the condition that management and control of the company has to remain in Indian hands. With the Cabinet quickly adopting the amendments suggested by the select committee, the stage is now set for the Bill to be introduced in the Rajya Sabha where despite the Congress’s support the Bill is not likely to have easy passage. The Congress has hinted that it would like to delay the Bill at least until the Budget session in order to make the government ‘sweat’, as one party member has said. In effect, the party wants to do to the BJP what the latter did to the Congress on the same issue when it was leading the government.
Political games aside, the adoption of the Bill is expected to open the tap for the flow of foreign investments into the insurance industry as foreign players have been waiting for the increased limit. Backed by a higher level of ownership, foreign companies would also be willing to share technical expertise with their Indian partners. The 49 per cent cap will include both foreign direct investment (FDI) and foreign portfolio investment. Though this might disappoint those who would have liked the entire limit to be appropriated for FDI, the fact is that there are not too many companies that are profitable and mature to list on the stock markets. The scope for FII investment is therefore limited. As the committee has rightly observed, incremental foreign investment should ideally be used to increase the capital base rather than to buy out local promoters who might want to liquidate a part of their stake. Segments such as health insurance require sharp focus, and the market is also big given that the social security system is weak in the country. The committee has done well in not agreeing to lower the limit of paid-up capital from Rs.100 crore for health insurance players; a lower threshold would have made it easy for non-serious players to enter the sector. Expansion of the insurance industry is also important for the development of the infrastructure sector as the industry is typically a provider of funds for long-term investment. This augurs well for the BJP government’s focus on developing infrastructure.
