by encouraging FII investment and discouraging FDI investment in a long-term industry with a 30-40 year business horizon like insurance, when every Indian government has wanted to achieve precisely the opposite? Are we now saying we now prefer FII to FDI after complaining that FII investment is hot and volatile while FDI is cold and permanent? If so why?
The FDI cap for insurance companies in India is the lowest in the world. Most Asian countries have caps of 51% (e.g. China) with Indonesia and Malaysia having higher caps and many permitting 100% FDI. What is so different about India that justifies a 26% for over 12 years after the insurance industry was opened up to the obvious and visible benefit of all Indians?
There are a number of other substantive reasons that militate strongly against this proposal. It seems to be driven by hasty political deal-making impulses without sufficient regard for unintended implications and consequences.
For these reasons MoF/GoI should stick to the original plan of increasing FDI in insurance from 26% to 49%. They should not, at this late hour—simply for political expedience which is not even necessary—complicate matters or muddy the waters by increasing foreign shareholding in insurance JVs via the FII route through a proposal that will do far more harm than good.
The author is chairman, Oxford International Associates Ltd