Union Budget 2021: FDI cap hike will raise insurance penetration, help attract overseas funds, say experts

In her Budget speech, Nirmala Sitharaman had proposed amending the Insurance Act, 1938, to increase the FDI limit in insurance companies from 49% to 74% and allow foreign ownership and control with safeguards

Press Trust of India February 07, 2021 18:12:21 IST
Union Budget 2021: FDI cap hike will raise insurance penetration, help attract overseas funds, say experts

File photo of Union finance minister Nirmala Sitharaman. PTI

New Delhi: Implementation of the Budget proposal to raise the foreign direct investment (FDI) limit in the insurance sector to 74 per cent will help attract overseas capital and enhance insurance penetration in the country, according to experts.

Deloitte India Partner and Financial Services Industry Leader Sanjoy Datta said the announcement to raise the FDI cap in the sector was a much-awaited move by the government. It is in direct recognition of the requirement for significant capital inflows to provide adequate levels of insurance cover to the population, he added.

The proposed increase in FDI would also likely result in increased value for customers by way of more product options at reduced costs, he said.

"We see a possibility of select foreign partners in existing insurance JV's (joint venture) seeking to increase ownership levels, attractive valuation for exits for existing investors (domestic and foreign) as well as the entry of new investors who prefer majority equity holding in the entity," he added.

Finance Minister Nirmala Sitharaman in her Budget Speech 2021 proposed to amend the Insurance Act, 1938, to increase the permissible FDI limit from 49 percent to 74 percent in insurance companies and allow foreign ownership and control with safeguards.

Shardul Amarchand Mangaldas & Co Partner Shailaja Lall said a more liberal FDI policy will certainly attract higher amounts of foreign capital, which will aid in increasing insurance penetration in India.

"While this is a welcome move by the government, foreign investors will certainly view this development with 'a pinch of salt' and like to take a cautious approach. Much will depend upon the fine print of the conditions being proposed," Lall said.

She added that once there is more clarity, it will need to be seen as to how many foreign investors are willing to infuse capital, without the ability to control the board.

"Any conditionality and regulatory approvals attached to payment of dividends to foreign investors may add another level of complexity. It is possible that the Irdai may also prescribe certain conditions to safeguard policyholder moneys," she said.

Updated Date:

Subscribe to Moneycontrol Pro at ₹499 for the first year. Use code PRO499. Limited period offer. *T&C apply

also read

Johnson & Johnson's single-dose COVID-19 vaccine safe and effective, says FDA paving way for approval
World

Johnson & Johnson's single-dose COVID-19 vaccine safe and effective, says FDA paving way for approval

The vaccine was 66.1% effective in preventing moderate to severe disease and appeared safe, the US Food and Drug Administration said on Wednesday

EPFO likely to announce interest rates on provident fund deposits for FY 2020-21 today
India

EPFO likely to announce interest rates on provident fund deposits for FY 2020-21 today

New EPFO enrolments have grown to 12.54 lakh in December 2020, a staggering 24 percent rise when compared to the same month for the year 2019

'Not so sasti anymore': Taapsee Pannu's rebuttal to Nirmala Sitharaman's claims on IT raids
Entertainment

'Not so sasti anymore': Taapsee Pannu's rebuttal to Nirmala Sitharaman's claims on IT raids

"Not so sasti anymore," Taapsee Pannu responds to the IT raids at her place, referring to Kangana Ranaut's "sasti copy" remark from 2019