Govt Clears Insurance Amendment Bill To Permit 100% FDI
The legislation, which has received the Cabinet's nod, will be tabled in the Parliament on Monday.
The Union Cabinet has approved the Insurance Amendment Bill, increasing the cap of foreign direct investment into the sector to 100%, sources told NDTV Profit on Friday.
The government plans to introduce the legislation in Lok Sabha on Monday, they added.
With this reform, foreign investors will be allowed to hold up to 100% stake in insurance companies based in India, as compared to the existing rules that cap their ownership at 74%.
The proposal was first floated by Finance Minister Nirmala Sitharaman in February, while presenting the Union Budget for financial year 2025-26.
The enhanced limit will be available for those companies which invest the entire premium in India. The current guardrails and conditionalities associated with foreign investment will be reviewed and simplified, she had said.
By removing the FDI cap, the government aims to unlock the full potential of the Indian insurance sector, which is projected to grow at 7.1% annually over the next five years, outpacing global and emerging market growth, Sitharaman told lawmakers earlier this year.
"This is an enabling provision which will help the interested insurers to explore hiking the FDI percentage. Further, this will eliminate the need for foreign investors to find Indian partners for the remaining 26%, easing the process of setting up their operations in India, effectively increasing the number of insurers in the country," she had said.
The government also expects removing the FDI cap will attract stable and sustained foreign investment, increase competition, facilitate technology transfer, and improve insurance penetration in the country.
As of 2024-end, foreign investors held 47.82% stake in life insurance companies, 40.8% in private sector general insurance firms and 29.46% in private sector standalone health insurers, according to government data.
Despite having 57 insurance companies (24 life insurers and 34 non-life insurers), penetration in India remains low. In FY24, insurance premium penetration was 3.7% of GDP, with life insurance at 2.8% and non-life at 0.9%, as per government data.
The decision to permit 100% FDI in insurance sector may encourage more global players to explore India, said Kamlesh Rao, managing director and chief executive officer at Aditya Birla Sun Life Insurance. However, translating that interest into meaningful scale "will depend on how effectively new entrants can navigate this distribution landscape", he added.
