Budget 2014: FDI in insurance capped at 49%, govt may let FIIs in

Written by Surabhi Rastogi | Surabhi | New Delhi | Updated: Jul 12 2014, 16:11pm hrs
Arun JaitleyFM Arun Jaitley in his Budget speech announced that the FDI cap in insurance sector would be increased to 49 per cent. (AP)
The government will push for a composite limit of 49 per cent foreign direct investment in the insurance sector, with the voting right of the foreign partner capped at 26 per cent.

While equity shares may be capped at 49 per cent, the government may also permit investments by foreign institutional investors in the sector.

The objective is to ensure full Indian management and control. So the voting rights in the banking sector and capped at 26 per cent, said a senior government official.

Finance minister Arun Jaitley as part of his Budget speech on Thursday announced that the FDI cap in the insurance sector would be increased to 49 per cent from the current 46 per cent.

The finance ministry is now understood to be reviewing four models for liberalising the insurance sector and is expected to finalise a proposal for the Cabinet soon.

It needs to be decided how the control will be kept with the Indian management and also permissible investments under the FDI cap that are in tandem with the IRDA regulations, said an official, adding that the proposal would be finalised in the next few weeks. If possible, we will try to table it in Parliament during the ongoing Budget session, he said.

Apart from the cap on voting rights, the government may also choose to put in some riders to ensure that the management and control stays with the Indian partner.

Restrictions in the form that the chief executive officer of the company is and Indian would be put in. Alternatively, the directors of the company would be Indian and they would together appoint the CEO of the company, said an official.

Though the insurance sector was opened up to private investors in 2000, FDI only up to 26 per cent is permitted in the sector. A bill to amend the Insurance Act is pending in the Parliament since 2008 but there was no political consensus on the issue.

After assuming charge as the Union finance minister, Jaitley had called a meeting with private sector insurers to discuss alternative plans to raise capital. Hiking the insurance cap could bring in as much as $3 billion of funds into the sector and most insurers have said it is essential to help them expand their business.