Union Budget 2021: FDI limit in insurance sector raised to 74%; Budget paves way for foreign control

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Updated: February 01, 2021 12:17 PM

Union Budget 2021: The amendment to the Insurance Act 1938 will also allow foreign ownership and control with safeguards.

"The Indian Rupee ended flat against the US currency on Tuesday, as importers' greenback purchases offset the impact of a weak dollar index," said Sriram Iyer, Senior Research Analyst at Reliance Securities."The Indian Rupee ended flat against the US currency on Tuesday, as importers' greenback purchases offset the impact of a weak dollar index," said Sriram Iyer, Senior Research Analyst at Reliance Securities.

Union Budget 2021: Foreign investment limit in the insurance space will be increased from the current 49% to 74%, Finance Minister Nirmala Sitharaman said in her Union Budget speech today. The amendment to the Insurance Act 1938 will also allow foreign ownership and control with safeguards. “Under the new structure majority of directors on board and key management persons will be resident Indians will at least 50% directors being independent directors and specified percentage of profits being retained as a general reserve,” she added.

“Increase in FDI in the insurance sector to 74% a welcome move to provide a big boost to one of the major under-penetrated sectors,” said Chirag Nangia, Director Nangia Andersen. He move could help companies increase penetration and scale-up. Religare Insurance, Star Health, Future Generali Insurance, IDBI Federal Life, could see some shakeup after the change, according to Nangia.

So far the only India residents were allowed to own insurance sector firm. “Foreign companies will be allowed to own Insurance companies in India upto 74% for the first time. Till date, foreign Investment was restricted to 49% along with control and ownership in the hands of Indian partner. The change will require amendments to the IRDA, 1999,” said Nischal S Arora, Partner Nangia & Co.

Increase in FDI limits from 49% to 74 % for the insurance sector will help insurance companies to raise funds to ensure their solvency is maintained in line with growing business needs. This may also help increase M&A in the sector while paving the way for PE funds to enter the space. “This will also augment foreign inflows and help attract more foreign companies,” said Manoj Purohit, Partner and Leader – Financial Services Tax, BDO India.

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