The government plans to include granting permission for foreign direct investment (FDI) upto 26% in the insurance brokerage sector under the automatic route in the consolidated FDI policy scheduled for a review in March.
The policy would make the FDI issue through a press note entry clear, two persons familiar to the development told FE. The department of economic affairs (DoEA) has referred the matter to department of industrial policy and promotion (DIPP) to make necessary amendments in the FDI policy.
The FDI policy is currently silent on the issue, but Reserve Bank of India (RBI) has so far not objected to such investment on the advise of Insurance Regulatory and Development Authority (Irda). The insurance regulator has allowed FDI upto 26% in broking and issued licences on the basis of insurance brokers regulations 2002. This regulation applies same principles for broking as is applicable for the insurance companies where provision for 26% FDI is available both in regulations and FDI policy.
“The move shall rationalise the long standing dichotomy between the treatment accorded to insurance companies and insurance intermediaries under the FDI policy. Insurance broking, falling under the latter category, has been categorised as ‘other’ financial services (outside the list of 18 permitted activities), thus, requiring prior FIPB approval irrespective of the extent of FDI,” said Akash Gupt, ED, tax and regulatory practise, PwC India.
Krishan Malhotra, head of tax and expert on FDI with corporate law firm Amarchand & Mangaldas said, “This issue is long pending with the government. It needs a clarification as Irda allows 26% FDI in broking considering it an insurance activity. Any clarity on this issue is a welcome step as investors are showing keen interest in the sector.”
Under the current consolidated FDI policy, DIPP has allowed entry to insurance business only and has not mentioned any intermediary services, including broking for getting FDI under the automatic route. It is now expected DIPP 2012 circular would be modified to include broking as one of the permissible areas for getting FDI.
Currently, there are about 250 insurance brokers in the country. There are also about four to five international players in India, participating through Indian insurance broking firms. Their main activity is to market insurance products of various companies.
“Lack of clarity on the policy results in delays in processing applications for FDI inflows in the insurance broking sector and also makes investors wary of putting money here. No one wants to be caught in regulatory issues after making investments,” said an official of insurance broking firm that wants to rope in a foreign player as joint venture partner.