Budget 2021: FDI in insurance increased from 49% to 74%

In a big boost to FDI inflows and the insurance sector, Finance Minister Nirmala Sitharaman on Monday announced increase of FDI limits from 49% to 74%. Shares of insurance stocks surged after the announcement. ICICI Prudential Life Insurance was up by 2.87% and Max Financial was up by 1.46%.

She proposed to amend the Insurance Act 1938. “I propose to amend the Insurance Act, 1938 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.

“Under the new structure, the majority of directors on the Board and key management persons would be resident Indians, with at least 50% of Directors being Independent Directors, and specified percentage of profits being retained as general reserve,” she added.

Increasing FDI limits in insurance has been a longstanding demand of the United States where most of the big insurance majors are situated.

Manoj Purohit, Partner and Leader - Financial Services Tax, BDO India said, "Increase in FDI limits from 49% to 74% for the insurance sector is a welcome step and will help insurance companies to raise funds to ensure their solvency is maintained in line with growing business needs. This will also augment foreign inflows and help attract more foreign companies".

Shagoofa Rashid Khan, Partner and Head - Project, Investment and Advisory Head - Funds, Investment and Advisory, Cyril Amarchand Mangaldas said, "Landmark liberalisation of insurance sector announced this will make increased M&A activity in this sector and also opens up this sector for much awaited PE funds capital that were finding deal making difficult due to restrictions under extant policy."