Budget 2021: Insurance Industry Hails FM's Decision To Hike FDI Limit From 49% To 74%

Budget 2021 Insurance Industry: Union Finance Minister Nirmala Sitharaman on Monday announced an increase in Foreign Direct Investment (FDI) limit in insurance from 49% to 74%.

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Union Budget 2021-22: Finance Minister Nirmala Sithraman fulfilled the longstanding request of investors by proposing to liberalize foreign direct investment in Indian insurance companies up to 74 per cent from the existing 49 per cent cap.

Making an amendment to the Insurance Act, 1938 the Finance Minister suggested an increase in FDI (foreign direct investment) limit from 49% to 74% in insurance companies. Foreign ownership would be allowed under this proposal with necessary checks and balances.  Between April-August 2020, the country received its highest ever FDI during the first five months of a year.  

Tabling the Union Budget for 2020-21, she said, “We propose to amend the Insurance Act, 1938 and will launch a new investor charter for investor protection. Will launch a securities market code which will include the SEBI Act, the government Securities Act and the Depositories Act.”

The investment sector welcomed Nirmala Sithraman's decision and Utkarsh Sinha, managing director Bexley advisors said " The hike in FDI cap in insurance from 49% to 74% is an initiative that will have a long-lasting impact in broadening insurance coverage in India, while also deepening the penetration of capital markets. Since insurance companies also serve as LPs to several private equity and VC firms, we can also expect a positive impact on the levels of private investments down the road."

"Tax holidays for capital gains on certain sectors and tax incentives for relocation of funds to India, and to investment divisions of foreign banks in India, is a great enabler: details awaited, but could be a big boost to raising investible capital for growth in India."

FDI is an investment made by a company or an individual in one country into business interests located in another country. In 2012, the government granted approval for the increase of the FDI limit in the insurance sector in India from 26% to 49%.