Budget 2021-22 : Hike in FDI limit in Insurance

Context :

Union Finance Minister Nirmala Sitharaman in Budget Session 2021-22 announced an increase in Foreign Direct Investment (FDI) limit in the insurance sector from the existing 49% to 74%. 

Budget 2021-22 : Hike FDI cap in Insurance

Key Points :

• Finance Minister said, "We propose amend the Insurance Act, 1938 to increase the permissible FDI limit from 49% to 74% in insurance companies and allow foreign ownership and control with safeguards."

• Finance Minister in Budget Speech 2021-22 said, "we will launch a new investor charter for investors protection. Will launch a security market code which will include the SEBI Act, the government Securities Act and the Depositories Act."

• According to Confederation of Indian Industry, "This is bound to attract enhanced flow of capital to the Sector, benefiting the economy."

Facts about Insurance :

• Life insurance penetration in India is 3.6% of the GDP, it is lower than the global average of 7.13%. 

• For General Insurance, it is even worse at 0.94% of GDP, as against the global average of 2.88%.

• Amendments to the DICGC Act, 1961, to help depositors get an easy and time bound access to their deposits to the extent of the deposit insurance cover.

• In 2012, the Government granted approval for the increase of the FDI cap in the insurance sector in India from the 26% to 49%.

• In February 2020, the DPIIT notified policy to allow 100% FDI in insurance intermediaries.

Also Read : Important Highlights of Budget 2021-22

Foreign Direct Investment (FDI) in India :

• FDI is the process whereby resident of one country made investment for the purpose of controlling the production, distribution and other activities of a firm in another country (the host country).

• Flows of FDI comprise capital provided by a Foreign Direct Investor to a business.

• FDI is inflows of money, technology, knowledge, skills and expertise.

• According to UN report, in 2019, India was among the top ten receivers of FDI, totalling $49 billion inflows. 

• Increasing FDI inflows in India since LPG 1991.

• Currently, India ranks in the list of top 70 countries in ease of doing business.

• Two Routes for FDI inflows in India :

1. Automatic Route : In this, the foreign investor does no require prior approval of the Government or the RBI.

2. Government Route : In this, the foreign investor has to take approval of the Government.

Shanai Ghosh, executive director and chief executive officer, Edelweiss General Insurance said (on Budget 2021-22 announcement), "This move will help increase avenue to bring in capital inflows in order to realise the full potential of Insurance in the country. This move will help strengthen the sector and also help further penetration of insurance in the country, which still is far behind the world average."

Also Read : Budget 2021-22 on Health & Wellness

References

PIB

GoI

E-papers