Budget 2020-21: Foreign investors are reluctant to infuse more capital in companies without having too much say on management control and operational policies of the company.
Budget 2020 India: The Insurance industry expects the government to increase the limit of foreign direct investment up to 74 per cent in the upcoming budget, The Indian Express newspaper reported on Monday. The FDI in the insurance sector is currently allowed up to 49 per cent and the insurance players expect the Finance Minister Nirmala Sitharaman to take cognisance of the complications faced by insurance companies and announce this reform to boost capital inflow amid the credit crisis.
The Finance Minister had said in 2019 that the government would hold discussions with stakeholders to relax FDI rules in the aviation, media, animation and insurance sectors and ease rules for single-brand retailers. The sector is keen to see FDI limit go up to 100 per cent as the companies are struggling to keep up the pace with the rising cost of operations and declining profits amid an economic slowdown. As things stand now, FDI in the insurance sector is limited to 49 per cent and to bring about a change in the limit of FDI, the government will have to amend the insurance act.
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“The FDI limit could be made 100 per cent, encouraging international players to set up in India and expand their footprint, with their own long-term strategies and best practices. However, adequate provisions will need to be made to safeguard Indian customers against the adverse effects, if any, of the FIIs international businesses,” The Indian Express newspaper quoted RM Vishakha, MD and CEO, IndiaFirst Life Insurance as saying.
One contentious issue complicating matters for the government, insurance companies and promoters is of management control. The English daily reported quoting sources from the insurance sector that foreign investors are reluctant to infuse more capital in companies without having too much say on management control and operational policies of the company. Many foreign companies had got into the sector with capital infusion when the government last increased the FDI limit to the current 49 per cent level from 26 per cent but a majority of them have exited the market citing poor communication and limited management control.