Industry cheers as Budget 2021 increases FDI limit in insurance to 74%

Illustration by Binay Sinha
The limit on foreign direct investment (FDI) in Indian insurance companies will be lifted from 49 per cent to 74 per cent, said Finance Minister Nirmala Sitharaman on Monday in her Budget speech for 2021-22, accepting a demand the industry had proposed for long.

The law presently says an Indian insurance company has to be "Indian-owned and controlled". This gives the Indian partner the right to appoint a majority of directors or control the management of a company. The Insurance Act will be updated to allow foreign ownership in insurance with safeguards.

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“The announcement by the government in today’s Union Budget to increase FDI in insurance companies to 74 per cent from 49 per cent is a move in the right direction. Insurance is a capital-intensive business and post the pandemic--many Indian partners are not in a position to invest further capital in their companies. Certain companies also require capital infusion to conserve solvency margins,” said Vighnesh Shahane, managing director and chief executive officer at Ageas Federal Life Insurance.  

“The Covid-19 pandemic has shown that further penetration of insurance in India is needed and for that capital infusion is required. The FDI hike will give the foreign promoter an opportunity to buy out their cash-strapped Indian partners if required and provide the needed cash infusion”, he said.

Anuj Shah, Partner, Khaitan & Co said, “This one reform that overhaul the insurance sector with its newly found tail-wind of foreign capital and know-how. The finance minister has also proposed that foreign ownership and control (which was not available until now) will be permitted with safeguards.  While, we await to see the final notification, this is indeed a very welcome move for the insurance sector”.

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