Government planning to relax FDI rules for pensions sector
, ET Bureau|
Mar 10, 2018, 10.53 AM IST
NEW DELHI: The government is examining a proposal to bring the foreign direct investment (FDI) policy for the pensions sector in line with that of the insurance sector, a government official said.
Such a move is expected to lead to higher overseas investment in the sector and benefit incumbents such as HDFC Pension Management and ICICI Prudential Pension Fund Management, experts said.
“The pension regulator has also raised this issue and sought parity with insurance sector guidelines,” said the government official cited above. “We are examining the issue and a special carveout for the pension sector may be worked out.”
Discussions are taking place between the finance ministry and the Department of Industrial Policy and Promotion (DIPP), which decides guidelines on FDI. “We have no issues — it is for the finance ministry to take a final call,” said a DIPP official.
In 2015, the government allowed 49% FDI in both the insurance and pensions sector under the automatic route, raising it from 26%. However, the insurance sector enjoys a greater leeway on the FDI limit with regard to indirect foreign investment. Under the current rules, both direct and indirect investment counts toward foreign investment in a company. The indirect component refers to investment made by an entity that itself has foreign investment.
Investment in an entity by an Indian company or a limited liability partnership (LLP) owned or controlled by non-residents or foreigners is considered indirect foreign investment and counted toward FDI. This had created a peculiar situation for India’s private sector banks, which are majority foreign owned. Under the rules, 74% FDI is allowed in private banks.
Therefore, all their investments in insurance, brokerages and pensions sector would in turn be counted toward FDI. Earlier, when only 26% FDI was allowed in the insurance sector, all insurance ventures of private banks were technically not in line with the letter of the policy.
Such a move is expected to lead to higher overseas investment in the sector and benefit incumbents such as HDFC Pension Management and ICICI Prudential Pension Fund Management, experts said.
“The pension regulator has also raised this issue and sought parity with insurance sector guidelines,” said the government official cited above. “We are examining the issue and a special carveout for the pension sector may be worked out.”
Discussions are taking place between the finance ministry and the Department of Industrial Policy and Promotion (DIPP), which decides guidelines on FDI. “We have no issues — it is for the finance ministry to take a final call,” said a DIPP official.
In 2015, the government allowed 49% FDI in both the insurance and pensions sector under the automatic route, raising it from 26%. However, the insurance sector enjoys a greater leeway on the FDI limit with regard to indirect foreign investment. Under the current rules, both direct and indirect investment counts toward foreign investment in a company. The indirect component refers to investment made by an entity that itself has foreign investment.
Investment in an entity by an Indian company or a limited liability partnership (LLP) owned or controlled by non-residents or foreigners is considered indirect foreign investment and counted toward FDI. This had created a peculiar situation for India’s private sector banks, which are majority foreign owned. Under the rules, 74% FDI is allowed in private banks.
Therefore, all their investments in insurance, brokerages and pensions sector would in turn be counted toward FDI. Earlier, when only 26% FDI was allowed in the insurance sector, all insurance ventures of private banks were technically not in line with the letter of the policy.
