Cabinet Paves Way For Raising FDI Limit In Insurance Sector To 74%

The move is set to benefit the industry as it will help grow the market with a broader range of products at affordable prices.

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 Finance Minister Nirmala Sitharaman announced major financial sector reforms in the Budget for 2021-22, the Union Cabinet has approved a proposal to amend the Insurance Act, 1938, paving the way for increasing the foreign direct investment (FDI) limit in the sector to 74 per cent from 49 per cent. 

The FDA limit is currently 49 percent. In 2015, it was the Modi government that raised the limit for foreign investment in the region from 26 per cent to 49 per cent.

Now the insurance law will be amended to implement this decision. According to sources, the amendment bill will be introduced in the current session of Parliament itself. 

Finance Minister Nirmala Sitharaman in Budget 2021-22 said, “I propose to amend the Insurance Act, 1938 to increase the permissible FDI limit from 49 per cent to 74 per cent in insurance companies and allow foreign ownership and control with safeguards.”

Under the new structure, the majority of directors on the board and key management persons would be resident Indians, with at least 50 per cent of directors being independent directors, and specified percentage of profits being retained as a general reserve.

She had also said that for investor protection, an investor charter would be introduced as a right of all financial investors across all financial products.

An increase in FDI will help improve life insurance penetration in the country. According to a report by Financial Express,  Life insurance premium as a percentage of GDP is 3.6 per cent in the country, way below the global average of 7.13 per cent, and in case of general insurance, it is even worse at 0.94 per cent of GDP, as against the world average of 2.88 per cent.

Formation of the Prime Minister's Health Protection Fund has also been approved

In another decision, the cabinet has also approved the formation of the Prime Minister's Health Protection Fund. The aim of the fund is to provide a fixed fund for the development of the health sector. The money earned through health and education cess collected from taxpayers will now be deposited in this fund. The government currently takes four percent of health and education cess from taxpayers. The money deposited in the fund will be used in flagship programs like Ayushman Bharat and Pradhan Mantri Swasthya Suraksha Yojana.