Despite finance minister Arun Jaitley articulating the governments readiness to accommodate some of the concerns of the Opposition parties, even the Congress party, which was all for the Bill when in government, refused to budge. As a result, the government had to refer the Bill to a select committee of the Rajya Sabha which will now submit its report in the first week of winter session of Parliament.
A delay in raising the foreign investment cap in insurance also holds back a similar hike in the respective limit in pension sector as the relevant law the PFRDA Act mandates that the foreign holding in the pension sector will be the same as in insurance.
Thursday's development came even as Primer Minister Narendra Modi is expected to visit the US by end September or early October, with plans to lure foreign investors to the Indian economy high on his agenda. India's insurance sector needs fund inflows from overseas of about $10 billion till 2019 as per an estimate by Deloitte.
The delay in the legislation, virtually pending since 2008 and which has a chequered history, would hamper the expansion plans in India of global insurers including AIG, Standard Life, MetLife, Sun Life, Prudential, Generali and Aegon, among others. Insurance penetration in India is currently 4%, denoting the stupendous potential for expansion of the market.
Some Opposition leaders expressed reservations over the proposal to allow foreign institutional investors within the composite foreign holding cap of 49% in insurance, and hence want to study the Bill in threadbare before it is tabled in Rajya Sabha.
The Modi government needs Opposition support for Insurance Laws (Amendment) Bill because while the BJP has a clear majority in Lok Sabha, it does not have a majority in Rajya Sabha even with its allies.
On Thursday, Jaitley informed lawmakers that the 15-member select committee with representatives from all major parties including the BJP, Congress, Trinamool Congress, AIADMK, BSP, SP and CPI(M), will now look into the Bill and submit its report in the first week of the next session. The standing committee on finance of the Lok Sabha had already vetted the Bill during the UPA's tenure.
We have been waiting for more than a decade for this bill, said Kaushal , chief executive at Tata AIG General Insurance, the New York-based insurers partnership in India, told agencies. It is still not clear when the Bill will be passed and in what form it will be. Many large international insurers are waiting for clarity on this, he said.
We hope that we get clarity soon on contents on the Insurance Amendment Bill and its passage in Parliament as the FDI limit enhancement is expected to bring in additional foreign capital across life, health and general insurance companies to the tune of Rs 20,000-25000 crore, said Shashwat Sharma, a partner at KPMG India.
Raising the foreign investment cap in insurance is crucial for sustaining the growth of private players, many of whom have tied up with leading foreign insurers such as AIG, Allianz, AXA, Sunlife, and Tokio to compete with state-owned Life Insurance Corporation and the three PSU general insurers.
The delay in hiking the cap has forced some foreign players such as Australia's AMP and New York Life to exit India.
Ever since the insurance sector was opened up by Atal Bihari Vajpayee's NDA government in 2000, as many as 23 life insurers and 24 general insurance have entered the sector as they saw immense opportunity due to the low insurance penetration (premiums underwritten as a proportion of GDP) of less than 5% in India, much lower than the global average of 6.5% and over 10% in many developed economies.
The life insurance industry, in particular, has been looking forward to the FDI increase to 49% to be able to get in funds that would for most players be the need of the time. One hopes that the Parliamentary Select Committee comes up with its suggestions soon followed by the speedy passage of the amended Bill in Parliament, which the industry would definitely appreciate greatly, said Anish Thacker of EY.
Life insurance premium income grew at a scorching rate ranging from 10% to 47% between 2000-01 and 2009-10 but fell by 1.6% in 2011-12 and remained flat at 0.05% in 2012-13. First-year premiums grew 11.6% during 2013-14 for life insurers.