The government has proposed to hike foreign direct investment (FDI) limit in insurance sector to 49 percent from the current 26 percent. The Department of Financial Services has amended the Insurance Laws Bill, 2008 with a rider that voting right of overseas partner will remain capped at 26 percent.
Further, the department has cleared that the chief executive officer (CEO) of the insurance company will be appointed by Indian shareholders subject to approval of a competent authority and a majority of the company's directors will have to be Indians. The department’s proposal sought increase in foreign investment in both general as well as life insurance segments of the insurance sector. Earlier proposal was that the higher FDI limit would be allowed only for health insurers. The official amendment will incorporate suitable safeguards on foreign equity investment in the insurance sector while enhancing the overall cap to 49 percent.
An increase in FDI limit to 49 percent would bring in around $1 billion (around Rs 6,000 crore) of foreign investment in Indian insurance sector. Insurance in India is mainly of two types namely ‘life insurance’ and ‘general insurance’. At present, there are fifty-two insurance companies operating in India of which twenty-four are in the life insurance business. During 2008-09 and 2013-14, insurance penetration has fallen from 4.6 percent to 3.9 percent, reflecting need to develop the insurance sector.