On 22nd March, Lok Sabha passed the Insurance Amendment Bill to raise the Foreign Direct Investment (FDI) limit in insurance companies from 49% to 74%. It was passed by the Rajya Sabha last week.
Finance Minister Nirmala Sitharaman specified that raising the FDI limit in the insurance sector will help companies increase additional funds and check over financial problems.
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The FDI limit in the insurance sector has increased significantly after the government decided to raise the cap from 26% to 49% in 2015. During the debate on the bill, opposition leaders raised questions on why the government was interested to pass a bill it was against earlier.
FM Nirmala Sitharaman answered saying that there is an urgent requirement in the insurance sector for the FDI limit to be raised so that there is enough capital available for expansion.
She also said that the government will provide funds for Public Sector Insurance Companies but Private ones will have to raise funds by themselves.
The main concern revolving around raising FDI Limits was to not leave a stressful situation unattended if growth capital is hard to come by. The pandemic has already made companies suffer.
It was recommended by IRDAI to increase the FDI limit after consulting stakeholders. This proposal was previously announced in Union Budget 2021-22 on 1st February.
How is it helpful?
This decision may benefit policyholders. It will attract foreign investment where required. It will also make the insurance sector more competitive, transparent, and efficient.
The raise will provide access to fresh capital to insurance companies that are struggling to increase capital from existing promoters. It will provide long-term growth capital for other companies to invest in newer technologies.
The funds are expected to bridge the Demand-Supply gap in insurance. It will also help in digitization and technology integration in the sector.
Under the policy, the majority of directors on the boards will be resident Indians with 50% independent directors. Thus, the Indian promoters will have the right to accept or reject board decisions