Due to political pressures government is likely to again take a step back on liberalization. It is expected that government will accept the demand of opposition and cap the Foreign Direct Investment (FDI) limit in insurance sector as well as in pension fund at 26%.
It is expected that government will drop the proposal of increasing FDI limit in insurance sector to 49%. And in pension fund government will cap the FDI limit at 26% and with assured returns.
Parliamentary standing committee, headed by former finance minister Yashwant Sinha, had recommended that FDI limit in pension fund should be capped at 26% in legislation itself. And assured returns should be given to those individuals who park their corpus in government securities. Standing committee has also said that increasing FDI limit in insurance sector, looking at the current global financial scenario will not be in the interest of insurance sector. For raising capital instead insurers should look at other options such as through Initial Public Offering (IPO) or through fund raising on the lines of that those done by banks.
Government is willing to move amendment in insurance sector through, ‘Amendment Bill 2008’ and in pension sector through, ‘Pension Fund Regulatory and Development Authority (PFRDA) bill 2011; in current parliamentary session. In both bills except FDI limit there is no other conflict hence, by keeping the FDI limit at 26% in both sectors government will able to push both these bills.
But as per insurers increasing FDI limit in insurance sector to 49% is the major clause of insurance amendment bill and keeping it unchanged it will send wrong signal to investors. Due to this many foreign companies who were willing to invest in India in insurance sector may review their decisions.
Biggest challenge for insurance industry is capital; foreign companies are eager to invest in India but if ceiling is kept at 26% then insurers will leave with no choice to induct domestic partners to meet the capital requirement.
As per the Insurance Regulatory and Development Authority’s (IRDA) estimates insurance industry will need capital of at least Rs 40,000 crore to achieve an insurance penetration level of 8% of Gross Domestic Product (GDP) and around Rs 66,000 crore for the insurance sector as a whole in next five years.
Besides, FDI limit clause, insurance amendment bill also have some other provisions which will provide IRDA greater flexibility by removing some clauses from statute and bringing under regulatory supervision.
It is expected that government will drop the proposal of increasing FDI limit in insurance sector to 49%. And in pension fund government will cap the FDI limit at 26% and with assured returns.
Parliamentary standing committee, headed by former finance minister Yashwant Sinha, had recommended that FDI limit in pension fund should be capped at 26% in legislation itself. And assured returns should be given to those individuals who park their corpus in government securities. Standing committee has also said that increasing FDI limit in insurance sector, looking at the current global financial scenario will not be in the interest of insurance sector. For raising capital instead insurers should look at other options such as through Initial Public Offering (IPO) or through fund raising on the lines of that those done by banks.
Government is willing to move amendment in insurance sector through, ‘Amendment Bill 2008’ and in pension sector through, ‘Pension Fund Regulatory and Development Authority (PFRDA) bill 2011; in current parliamentary session. In both bills except FDI limit there is no other conflict hence, by keeping the FDI limit at 26% in both sectors government will able to push both these bills.
But as per insurers increasing FDI limit in insurance sector to 49% is the major clause of insurance amendment bill and keeping it unchanged it will send wrong signal to investors. Due to this many foreign companies who were willing to invest in India in insurance sector may review their decisions.
Biggest challenge for insurance industry is capital; foreign companies are eager to invest in India but if ceiling is kept at 26% then insurers will leave with no choice to induct domestic partners to meet the capital requirement.
As per the Insurance Regulatory and Development Authority’s (IRDA) estimates insurance industry will need capital of at least Rs 40,000 crore to achieve an insurance penetration level of 8% of Gross Domestic Product (GDP) and around Rs 66,000 crore for the insurance sector as a whole in next five years.
Besides, FDI limit clause, insurance amendment bill also have some other provisions which will provide IRDA greater flexibility by removing some clauses from statute and bringing under regulatory supervision.
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