The Union Finance Minister Nirmala Sitharaman on Monday announced an increase in Foreign Direct Investment (FDI) limit in the insurance sector from 49% to 74%. The Fintech Convergence Council (FCC), had submitted this recommendation as a part of its submission to the Ministry of Finance earlier in its Pre-Budget Consultation with the stakeholders. The association had expressed its strong support to revisit the existing limited FDI allowance in the sector.
The industry body had highlighted the issue that FDI in insurance companies was permitted under automatic route up to 49% with a rider that insurance companies should be Indian owned and controlled, i.e. more than 50 percent should be beneficially owned by resident Indian citizens. This restricted the control of the insurance company only to resident Indian citizens.
The association had suggested in its submission that enhancing FDI limits in the insurance sector can help in bringing better technical know-how, innovation, and improving insurance penetration. The announcement in the Budget will be a crucial factor in the growth of the Insurance ecosystem in the country.
Mr. Varun Dua, Chief Executive Officer, Acko General Insurance & Co-Chairman, Insurance Committee, Fintech Convergence Council, supported the spirit of the Budget highlight and said, “At an overall Budget level – the focus on economic growth even at the cost of higher fiscal deficit is the right decision to counter the Covid impact on the economy. There is no magic wand to fix problems but also no better tool than growth to achieve India’s short and long-term objectives.”
“The proposed investment in healthcare infrastructure is very heartening and also closely linked to insurance in terms of reducing the out-of-pocket healthcare expenditure. The increase of the FDI limit in insurance to 74% was eagerly awaited to bring it at par with other financial services sectors such as banking, asset management, and lending. Insurance is a long gestation capital intensive business and the sector is capital-starved especially now as Covid restricted access to domestic capital. India is hardly scratching the surface when it comes to insurance penetration. Insurance is critical not only for the country’s long-term infrastructure development but also for the resilience it provides to businesses and people at large. The industry wholeheartedly welcomes this decision and is gearing towards building a competitive world-class market for the consumers”, Dua added.
Explaining how the announcement was to benefit a larger industry segment. Mr. Sarbvir Singh, CEO, PolicyBazaar & Co-Chairman, Insurance Committee, Fintech Convergence Council, expressed his alignment with the announcements in the budget and said, “This year’s Union budget presented by Finance Minister Nirmala Sitharaman was a step towards building a $5 trillion economy. The primary focus of this year’s budget speech was the healthcare sector for which the government has allocated an outlay of Rs. 64,180 crores over six years. This was much needed considering the once-in-a-century global pandemic that the nation is currently braving. The FM has even proposed an increase in the foreign direct investment limit in insurance from 49% to 74% – a long-standing ask of the Indian insurance industry.”
Elaborating on the need for the announcement Singh added “There has always been a strong relationship between foreign investment and economic growth and to achieve the current economic target, a larger inflow of investment is much needed. Expanding FDI is a revolutionary move as it will not only help in capital infusion but will also be beneficial in increasing the insurance penetration rate in India. It will also provide room for more players in the market, thus increasing competition and choice of products to choose from. For customers, higher spend on the healthcare industry means more investment in tech-based customer services and innovative insurance products for overall protection.”