News: Insurance FDI move likely in budget session

(DNA 19/01/2007) Kolkata - The government is likely to take a call on increasing the foreign direct investment in insurance from 26% to 49% in the budget session of the Parliament.

The opening up of this sector to FDI promises to unleash a multiplier effect, which is expected to generate a capital inflow of $3-4 billion in 3-4 years. Also, there is a huge potential for direct and indirect employment that the sector will provide. The insurance industry is already said to have employed around 2 million in six years since it was opened up to private players.

Industry sources close to the developments said that the issue of hiking the FDI along with amending the various provisions of the various insurance Acts will be actively considered in the forthcoming session of the Parliament.

Meanwhile, after an hour-long meeting with P Chidambaram on Thursday, Britain’s finance minister Gordon Brown said: “Finance minister P Chidambaram indicated that a bill will be introduced in Parliament next month to increase foreign direct investment limit in insurance to 49% from 26%”.

Sunil Mehta, country head and chief executive, AIG, told DNA Money: “The government should be in a position to take this forward. There are different levels of caps permitted in the financial sector and at times the FII ownership comes to the fore. Artificial caps in the insurance sector are not conducive as this limits the long-term domain capital as against short term FII ownerships”.

A higher cap would also increase the appetite of the foreign insurers and newer ones to make an entry. “When you bring in more capital, there is a multiplier effect which is estimated to generate premiums upto almost 10 times, which again can be reinvested. It is estimated that $3-4 billion would come in the next 3-4 years incase the FDI cap is increased”, Mehta said.

A leading insurer, with a strong Indian partner said: “There is no question of shying away from higher FDI. The protectionist desire is no longer acute with Indian promoters who have deep pockets. The higher the capital, the ability to take risks is higher too”.

The proposed change in FDI cap is part of the comprehensive amendments to insurance laws - The Insurance Act of 1999, LIC Act, 1956 and IRDA Act, 1999.