India’s Union Cabinet has given approval to a parliamentary committee’s report which recommended a composite cap of 49% on foreign investment in the insurance sector.


The report, which was tabled in the upper house of Parliament, Rajya Sabha, has also received support from the main opposition party, Congress. In order to win the support of the opposition, the report had adopted 88 amendments, which were earlier suggested by the Congress.

The present ruling National Democratic Alliance, led by the Bharatiya Janata Party, is hoping to ease the rules over foreign direct investment (FDI) in order to boost investor confidence in the sector, which is currently starved off capital constricted by stringent regulations.

The FDI limit has been increased from the current 26% to 49%.

The parliamentary committee, chaired by Rajya Sabha member Chandan Mitra, also supported the issuance of fresh equity for raising stake, even though this has not been stipulated as mandatory.

The report said: "The committee is also of the view that incremental equity should ideally be used for expansion of capital base so as to strengthen the insurance sector."

Several foreign insurers are operating in India through joint ventures with local firms. These include Sun Life Financial, Prudential, Nippon Life Insurance, Generali and Aegon.

Citing industry sources, Reuters reported that the increase in the cap would attract foreign investment of up to $2bn into the sector within one year of the implementation of the insurance bill.

The clearance of the bill was crucial in Rajya Sabha, where the present ruling party, BJP, does not command a majority. However, with the clearance of the bill in the upper house, major hurdles have been removed. The bill is likely to be passed by the Parliament in this session.

Image: The Sun Life Financial Canadian headquarters in Waterloo, Ontario. Photo: courtesy of Giligone.