The Budget has simplified the process for foreign players to increase their stake in insurance companies by allowing foreign direct investments (FDI) of up to 49% in the insurance and pension sectors through the automatic route.
This move indicates that investors now need to take the final approval from the Insurance Regulatory and Development Authority of India
(Irdai), instead of approaching the Foreign Investment Promotion Board (FIPB) for increasing their stake.
However, the existing guidelines on Indian management and control will have to be verified by the respective regulators – Irdai and the Pension Fund Regulatory and Development Authority (PFRDA).
Vibha Padalkar, CFO at HDFC Life, says, “This is a welcome step to allow investment in the insurance and pension sectors through the automatic route up to 49%. With this changes, one has to directly go to the insurance regulator and not the FIPB for increasing their stake. Such a move will bring in more foreign money over the period of time and the overall process to increase the stake is made simplified.”
Market participants say even after the government increased the foreign investment cap in insurance and pension to 49% from 26% last year there was not much activity owing to a few obstacles from the FIPB side.
Industry players are, however, skeptical about the move as concerns remain over Indian management and control.
To allay any apprehension, it has also been announced in the Budget that general insurance companies owned by the government will be listed on the stock exchanges. This move has been hailed by insurance participants as it will ensure higher levels of transparency and accountability in public shareholding in government-owned companies.
The other relief came after the Budget proposed reduction in the service tax on single-premium annuity (insurance) policies from 3.5% to 1.4% of the premium paid in certain cases. “This move could reduce the cost of the policy and the benefits could be passed on to the consumers”, said the CEO of another private insurer.