A key take away from the Union Budget 2021 is that the Centre has proposd to increase FDI cap in insurance sector to 74%. Presenting the Budget, Finance Minister Nirmala Sitharaman, on Monday announced that the government will amend the Insurance Act, 1938 to increase the permissible FDI limit from 49% to 74%.
Nirmala Sitharaman stressed that the government plans to allow foreign ownership and control with safeguards in insurance sector.
The Insurance Act 1938 will be amended to "increase the permissible FDI limit from 49% to 74% in insurance companies and allow foreign ownership and control with safeguards," the finance minister said in her Budget speech.The FDI limit was fixed at 26% when the insurance sector was privatised in the year 2000 and this was then raised to 49% in the year 2015.
The finance Minister Nirmala Sitharaman also said investor charter will be introduced as a right of all financial investors across all financial products.
Insurance companies should be Indian owned and controlled under the law.
Majority of Directors on the Board and key management persons shall be resident Indians.
At least 50% of Directors will be Independent Directors.
Specified percentage of profits would be retained as general reserve.
Overall insurance penetration was 3.7% (premium as percentage of GDP), according to IRDAI data for FY18. Life insurance penetration stood at 2.74%, while non-life was 0.97%.
Experts have been of the opinion that an increase in the FDI limit would provide an impetus to the industry to scale up and help lift the pandemic-hit Indian economy.
The government has already allowed 100% foreign investment in insurance intermediaries such as brokers, consultants, third-party administrators, surveyors and loss assessors.