Rajya Sabha passes bill to hike FDI in insurance sector to 74%

Union Finance Minister Nirmala Sitharaman. (File image)

The Rajya Sabha on March 18 passed the bill to hike foreign direct investment (FDI) in the insurance sector to 74 percent from current 49 percent.

With the Insurance (Amendment) Bill, 2021, passed in Rajya Sabha, majority of key management persons and directors on the board would be Indians. The new structure allows at least 50 percent of directors to be independent directors, while specified percentage of profits being retained as a general reserve.

On the issue over control, the Union Finance Minister Nirmala Sitharaman said, "Control means right to appoint majority of directors and key management to be resident Indians. Specific percentage of profits to be retained as general reserve. Laws of the land fairly mature, no one can kick it away and make us watch."

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Sitharaman clearly mentioned that no insurer shall directly or indirectly invest funds of policy holders outside India. Apart from this, the Finance Minister said that there will be a good watch on how insurance firms' decisions will be taken.

However, the FM maintained that increasing the FDI cap doesn't mean automatic foreign investment to that level to all companies. She said, "Every company will decide for themselves, whether they want that money, to what extent and so on. So, this enabling amendment is only to allow them to receive some money but not exceed 74 percent."

Speaking in the Upper House in favour of the FDI hike in insurance sector, the FM mentioned that IRDAI has said FDI limit has to be raised with safeguards. Adding more details, she said that India needs deep pockets for insurance sector and need long term capital to be supplemented.

Meanwhile, Congress and other opposition parties staged a walkout from the Upper House in protest against raising FDI limit in the sector.

Earlier in Budget 2021, the Union FM had increased FDI limit in the insurance sector from 49 percent to 74 percent. In March 2021, the Union Cabinet also gave its nod for amendments in the Insurance Act, which paved the way for 74 percent FDI in the insurance sector.

In 2015, PM Narendra Modi-led government hiked the FDI cap in the insurance sector from 26 percent to 49 percent, stating that the move would improve life insurance penetration in the country.