Narendra Modi govt in no hurry to hike FDI in insurance

Written by fe Bureau | New Delhi | Updated: May 30 2014, 16:25pm hrs
The Modi government seems to be in no hurry to hike foreign investment in the insurance sector from 26% to 49% as the financial services secretary G S Sandhu said the plan is to explore other options to help the sector raise capital.

He said the government is considering a proposal to relax the foreign investment cap in a calibrated manner by restricting the easing of curbs in certain sub-sectors first and then extending it to others.

The insurance sector is broadly divided into life and non-life, of which the latter includes health, motor, fire, home and travel insurance.

Many foreign players and western countries were lobbying hard for relaxing the foreign investment curbs in the sector saying it will ensure that foreign shareholders will have greater commitment in the sector, while the domestic insurance sector gains product and technical expertise besides the much needed capital.

It is estimated that the country's insurance sector needs capital worth around $12 billion up to 2020 and hiking of the cap is expected to bring in around $3 billion immediately.

However, some experts have argued that the new government needs to first look at strengthening the domestic insurance sector first before permitting more FDI so that promoters and other stakeholders benefit from the move. They have also argued for more FDI investment that is long-term in nature than allowing foreign institutional investors whose stay is for a short duration.

The domestic players had given several suggestions, including the government diluting its stake in public sector insurance companies, to raise money through such a divestment.

At the fag end of UPA's tenure, when it wanted to pass the Insurance Laws (Amendment) Bill to relax the FDI ceiling to 49% in the sector among other things, the BJP had staunchly opposed the move. Though the Bill was first introduced in 2008 in the Rajya Sabha, and the cabinet had approved the FDI cap hike in October 2012, the UPA could not ensure political consensus for it. The parliamentary standing committee on finance headed by senior BJP leader and former finance minister Yashwant Sinha had recommended that the FDI ceiling be retained at 26%.

That (increasing FDI in insurance) was discussed, but no decision was taken. We have to examine a few issues, including the options available to attract capital apart from hiking the FDI to 49% and whether we could go (about relaxing the cap) in a graduated manner, Sandhu said.