The proposed increase in foreign direct investment (FDI) limit from 74% to 100% for insurance companies may unlock the full potential of the sector, which is projected to grow at 7.1% annually over the next five years, finance minister Nirmala Sitharaman told Lok Sabha on Monday.
The growth of the Indian insurance sector will outpace the corresponding global and emerging market economy growth rates, she said in a written reply to the Lok Sabha.
The insurance bill to increase the FDI limit to 100% is not listed in the current Parliament session. It may be taken up in the winter session.
Ease of Entry for Foreign Players
The proposed increase in FDI limit is an enabling provision which will help the interested insurers to explore hiking the FDI percentage, she said.
“Further, this will eliminate the need for foreign investors to find Indian partners for the remaining 26%, easing the process of setting up their operations in India, effectively increasing the number of insurers in the country,” the minister said.
Removing the FDI cap will attract stable and sustained foreign investment, increase competition, facilitate technology transfer, and improve insurance penetration in the country, she said.
Current FDI
Besides raising the FDI limit and allowing composite licensing to undertake life, general, or health insurance under one entity, the Bill will also relax the current guardrails and conditionalities on the repatriation of dividends and key management personnel for foreign-owned insurance firms to further ease of doing business.
The government is of the view that the sector requires capital inflows to grow and raise the insurance penetration level in the country.
Even though FDI up to 74% is currently allowed, the FDI part of the capital employed in the life and general insurance sector by the private insurance companies has not been fully utilised by most companies. Only four out of 19 life insurance companies have utilised the full limit of 74% while none of the 20 general insurance firms have touched that limit.
“The decision to increase FDI component in a particular insurance company is made by its promoters, depending upon various factors such as capital requirement of the company, solvency requirement, future business plans, etc,” Sitharaman said.
In aggregate, foreign investors held 47.82% equity share capital of life insurers as of December 31, 2024. It was 29.46% in the case of non-life insurers.