for a political compromise would complicate matters and adversely affect the ability of the sector to raise long-term foreign capital. The Insurance Regulatory and Development Authority also backed the move to allow 49% FDI.
Those who argue that FDI and FII should be separate have concerns over the possibility of a single foreign investor getting a 49% stake in an insurance company, and at the same time two or more Indian entities being in the minority by sharing the remaining 51%.
However, Gautam Mehra, executive director, PwC, said, “If you give a 49% stake to foreign investors, they will be more comfortable and will get serious long-term investments.” Currently, even with 26% FDI, the foreign joint venture partners anyway have the ability to control the company through the power to appoint people to key positions such as the chief risk officer and the chief financial officer, he pointed out.
The advantage of the composite foreign investment cap over separate boxes for FDI and FII is the flexibility the former offers.
According to Securities and Exchange Board of India regulations, each FII cannot hold more than 10% equity in a company and their sub-account cannot own over 5% stake in a company, which in turn forces the need to bring in multiple investors if any insurance company opts for the complicated option of a higher FII component. Mehra added that if the intention is to raise long-term capital, most Indian companies would prefer long-term foreign investment, which is FDI.