Raising FDI Cap to Increase Insurance Penetration and Attract Foreign Funds: Experts

New Delhi: Implementing the budget proposal to raise the foreign direct investment (FDI) limit in the insurance sector to 74 percent will help attract foreign capital and improve insurance penetration in the country, experts say. Sanjoy Datta, the leading partner of Deloitte India Partners and Financial Services Industry, said the announcement to raise the FDI cap in this sector was a highly anticipated move by the government. This is a direct recognition of the need for significant capital inflows to provide adequate insurance coverage for the population, he added.

The proposed increase in FDI would also likely add value to customers through more product options at lower costs, he said.

“We see the possibility that selected foreign partners in existing insurance JVs (joint ventures) increase the participation rate, an attractive evaluation for exits for existing investors (domestic and foreign) as well as the entry of new investors who have a majority stake in Wesen” , he added.

Treasury Secretary Nirmala Sitharaman proposed in her 2021 budget address to amend the Insurance Act of 1938 to increase the allowable FDI limit from 49 percent to 74 percent in insurance companies and allow foreign ownership and control with insurance.

Shailaja Lall, partner at Shardul Amarchand Mangadas & Co., said more liberal FDI policies will certainly attract higher amounts of foreign capital, which will help increase insurance penetration in India.

“While this is a welcome move by the government, foreign investors will certainly view this development with a ‘pinch of salt’ and proceed with caution. Much will depend on the fine print of the proposed terms,” ​​Lall said.

As soon as there is more clarity, it must be checked how many foreign investors are willing to bring in capital without being able to control the board of directors.

“Any conditions and regulatory approvals associated with paying dividends to overseas investors can add further complexity. It is possible that Irdai may also impose certain conditions to protect policyholders’ funds,” she said.

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