India may raise FDI limit in insurance sector
In a big economic reform, the Congress-led government has decided to introduce in parliament a bill to raise the foreign direct investment (FDI) limit in insurance sector from the existing 26 to 49 per cent.
Announcing the cabinet decision, Finance Minister Palaniappan Chidambaram told mediapersons here on Friday that an insurance amendment bill to hike the FDI cap would be placed in parliament but time constraint may not allow it to be passed during the current tenure of the House before fresh general elections, due in May next year.
At present, FDI in insurance sector in India is estimated to be Rs 2,500 crore and the industry expects this to go up to Rs 7,000 crore once the limit is increased, as many overseas insurance companies are keen to enter India.
Private sector insurance companies, which have been lobbying to have the FDI limit raised, welcomed the government decision describing it as a step in the 'right' direction.
They, however, at the same time skeptical whether this would lead to inflow of funds from foreign insurance companies at a time of global financial meltdown.
Other proposed changes in insurance laws would help India's largest insurer state-owned Life Insurance Corporation raise its capital base to 20 million dollars from the present ten million dollars.
Life insurance business in India is expanding at a compounded growth rate of over 30 per cent.
Domestic insurers were feeling the pressure for more funds and the decision to raise FDI limit in insurance sector is expected to ease infusion of funds, sector analysts said.
However, the proposed changes in ownership rules would not apply to state-run insurance companies where the government is the sole owner.
India has 201 life and 20 general insurers. The joint ventures include Tata AIG, Bajaj Allianz, ICICI Prudential, HDFC Standard Life, Birla Sunlife, Max New York Life, Bharti AXA Life and IDBI Fortis.
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