News: Insurance FDI limit to be raised to 49%

(IM 15/02/2007) New Delhi - With the Budget just round the corner, private insurance companies are crossing their fingers for the much-awaited Foreign Direct Investment (FDI) hike to 49% from the present 26%.

The Group of Ministers (GoM) are still debating on the FDI hike since this would mean amending the Insurance Act. Conversely, the GoM has ruled out a separate cap on Foreign Institutional Investors (FIIs) in insurance companies. It is more in the favour of continuing with the composite cap for both FDIs and FIIS.

In addition, the government guaranteed on LIC policies was being considered to withdraw. Implementing it would mean amending the LIC Act. If the government decides to do away with its guarantee on LIC policies, the state insurer would soon have to increase its paid-up capital to Rs. 100 crore from the present Rs. 5 crore. However, the Insurance Regulatory and Development Authority (IRDA) wants a level playing ground for both public and private insurance companies, for which the government must withdraw its guarantee on LIC policies.

It is expected that the FDI cap on insurance would be soon raised to 49% in the forthcoming Budget. However, the final decision is still pending.