Indian PM orders insurance and coal reforms
December 24, 2014, 9:06 am

A man walks past a wall painted with graffiti in Hauz Khas village in New Delhi, capital of India, May 7, 2013 [Xinhua]

The central government has ordered the promulgation of an ordinance to hike Foreign Direct Investment (FDI) to 49 per cent in insurance companies ensuring management control in the hands of Indian promoters. The order also approved opening up the coal industry to the private sector.

The legislations could not be passed in the Indian Parliament’s winter session that went into a recess on Tuesday.

“The Cabinet has cleared the Ordinance on insurance sector,” sources quoted by Indian news agency PTI said after the meeting of the Union Cabinet headed by Prime Minister Narendra Modi in New Delhi.

The order will need to be approved by lawmakers within six weeks of the opening of the next session of parliament – scheduled for the beginning of February.

The 49 per cent cap would include both FDI and foreign portfolio investments.

The long-pending bill was stalled in the Indian Parliament because of opposition from several political parties, including the now-ruling BJP.

India’s BRICS partners Brazil and South Africa allow 100 per cent FDI in insurance, Russia 49 per cent and China 50 per cent.

In stark contrast to other areas of India’s financial services where the FDI limit were raised after five years, it’s been fourteen years since the FDI limit in insurance has stayed at 26 per cent.

State-owned Life Insurance Corporation (LIC) accounts for 83 per cent of the Indian insurance market share.

There are 52 insurance companies operating in India, of which 24 are in the life insurance business and 28 in general insurance business. GIC is the sole national reinsurer.

The move would help insurance firms to get much needed capital from overseas partners.

Aviva Plc (AV/), Allianz SE (ALV) and ING Groep NV (INGA) are among global insurers that will be able to further invest in their Indian ventures if the cap is raised.

India’s insurance industry needs around $12 billion in capital by 2020. An increase in FDI limits would bring in an estimated $1-3.5 billion immediately, say experts.

The proposal to raise FDI cap has been pending since 2008 when the previous Congress government introduced the Insurance Laws (Amendment) Bill to hike foreign holding in insurance joint ventures to 49 per cent from the existing 26 per cent.

The insurance sector was opened up for private sector in 2000 after the enactment of the Insurance Regulatory and Development Authority Act, 1999.

This Act permitted foreign shareholding in insurance companies to the extent of 26 per cent with an aim to provide better insurance coverage and to augment the flow of long term resources for financing infrastructure.

The industry has been demanding for long to increase the FDI limit for adequate funds for expansion of the sector.

TBP and Agencies