Insurance Regulatory and Development Authority of India (IRDAI) on July 30 said that the 'Indian Control of an Indian Insurance Company' and 'Indian Ownership' clause under insurance laws have been dropped with immediate effect.
This is after an amendment through the Indian Insurance Companies (Foreign Investment) (Amendment) Rules, 2021. The Insurance (Amendment) Act, 2021, notified in March 2021 had amended the laws to omit this clause.
In March 2021, the Parliament passed the Insurance Amendment Bill 2021 leading to a hike in foreign direct investment (FDI) limit in the sector to 74 percent.
Finance minister Nirmala Sitharaman had announced this proposal in the Union Budget 2021-22 on February 1. She had then said that the FDI limit in India's insurance sector will be hiked to 74 percent from 49 percent.
Under the new structure of 74 percent FDI limit, the majority of directors on the boards and key management positions will be resident Indians with at least 50 percent directors will be independent directors. A specified percentage of profit will be retained as general reserve.
'Indian management control’ was a clause inserted when the insurance FDI cap was hiked to 49 percent in 2015. This clause meant that the all board-level matters related to appointments, company strategy and business expansion would have to be approved by a majority of Indian shareholders.In her 2021 Budget speech, the finance minister did not use the words ‘Indian management control’ but made it clear that key management decisions would need majority approval from Indian shareholders.