Parliament passes Insurance Bill to hike FDI limit to 74 per cent

Parliament has passed a Bill to raise the Foreign Direct Investment ( FDI) limit in insurance sector to 74 per cent from the current 49 per cent, with the Lok Sabha giving its nod for this legislation on Monday.

Replying to discussions on the Insurance (amendment) Bill 2021 in the Lok Sabha, Finance Minister Nirmala Sitharaman asserted that the FDI limit hike is intended only to strengthen the insurance sector and should not be seen as government selling the family silver.

“By the enhancement in FDI from 49 to 74 per cent, private sector is going to be able to raise resources. We are not talking about the public sector here. Private sector needs to raise money. This will give them window for raising money”, she said.

The Finance Minister highlighted that financial sector (banking, insurance) has been recognised as a “strategic sector” by the government and so the public sector presence will continue.

“It is not right to say this (FDI limit increase) will close down and finish off public sector. Public sector enterprises will continue. The Public sector enterprises policy framed by the government is about right sizing the public sector and unlocking value and investment”, she added.

More resources for private sector

She highlighted that the aspiration of growing India cannot be met if more resources are not made available to private insurers.

“Insurance penetration can be improved only if greater resources are available to insurers. Government alone cannot do it all. We want to cover all Indian population. If we have to do this, then capital must be available and government also has a responsibility to look at the interests of employees working in private sector”, she said.

Sitharaman also asserted that this Bill had nothing to do with Life Insurance Corporation (LIC).

She highlighted that the number of persons working in the private sector stood at 24 lakh (both employees and agents), which is about seven lakh more than 17 lakh in public sector (employees and agents) insurers.

Sitharaman also assured the Lower House that adequate safeguards are in-built in the Bill so as to ensure that Indian policyholders’ funds remained within the country. Even one portion of the profits will have to be kept in India, she added.

Insurance penetration

She said insurance penetration rose to higher levels after 2015, when the FDI limit was earlier raised from 26 to 49 per cent. However, during 2011-14, in the absence of required resources, Indian penetration dropped from 4.1 to 3.3 per cent. “It (insurance penetration) actually comes down when enough liquidity is not available. So we have to open up. Insurance penetration is ratio between Premium and GDP. It can only increase when insurance sector grows at faster rate than GDP growth itself. During 2015-20, it grew at 74 per cent when GDP grew overall 64 per cent. This rapidity in growth has made a difference to insurance sector”, she added.

Sitharaman also noted that BJP had to oppose FDI hike in insurance sector in 2008-09 as no such safeguards — which are now being introduced in the latest Bill — were in that Bill.

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