Union Budget 2021: FDI Limit Increased to 74% From 49% in Insurance Sector

On Monday, Finance Minister Nirmala Sitharaman announced Union Budget 2021. In her speech, she emphasised that foreign direct investment limit or FDI limit in insurance sector will be hiked to 74% from 49%. This change will be incorporated after Insurance Laws (Amendment) Act 2015 and Insurance Act 1938 are amended in the Parliament. It must be noted that in the year 2000, privatisation of the insurance sector was done where the FDI limit was fixed at 26%, which was later increased to 49% in the year 2015.

FM stated that the FDI limit hike in insurance will allow foreign ownership and control with safeguards. According to the new structure, resident Indians with at least 50% directors as independent directors will be the majority of directors on the boards and key management persons. A specific profit percentage will be retained as general reserve.

Russell Gaitonde, Partner, Deloitte India agreed with the Indian government’s decision to increase the FDI limit in the insurance sector. He stated that it is a welcomed move because it was long-awaited by the industry. Furthermore, it will help in attracting greater foreign investment and making the insurance sector even more strong.

It must be noted that after BJP came into power in 2019, it proposed to increase the FDI cap in the insurance sector to 74% so that the insurance sector gets an additional investment.

"Insurance is a capital intensive business. After the pandemic, various Indian partners are not interested in investing further capital in their companies. This FDI hike will give foreign promoters a chance to buy out their cash-strapped Indian partners”, said Vighnesh Shahane, MD & CEO, Ageas Federal Life.

In the past, increasing the FDI limit has been one of the key agendas of the government. Even the regulator, IRDAI agreed that an increase in insurance should be brought on par with the banking sector.

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Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.