Making a strong case for raising Foreign Direct Investment (FDI) cap in insurance sector, Finance Minister, P. Chidambaram, has said that insurance industry requires $5-6 billion capital in immediate future.
Every company already has 26% FDI, so if FDI cap is raised from 26% to 49%, then there is headroom for them to bring more capital.
The penetration ratio in life insurance sector is 4.4% and 0.76% in the non-life segment; this means vast majority of population does not have insurance at all.
Last week cabinet approved an amendment to the insurance laws (amendment) bill, 2008, to raise the FDI cap in insurance sector to 49% from current 26%. The proposal needs to be cleared by the parliament.
P. Chidambaram said that the government intends to meet Bhartiya Janta Party (BJP) and other parties ahead of winter session of the parliament to seek their support to raise the FDI cap in insurance sector to 49% as sector requires huge amount of capital.
He also said that by and large, the provisions of the insurance bill are along the lines recommended by the standing committee on finance and he does not expect any opposition to the entire bill or the most of its clauses.
He also said that there is disagreement on only one clause –on raising FDI ceiling. And on this clause he is expecting a vigorous debate and hopes to convince the opposition parties even before the winter session of parliament.
Standing committee on finance headed by Yashwant Sinha has recommended retaining FDI ceiling in insurance sector at 26%.
Raising FDI cap has been the long standing demand of insurance companies and IRDA.
The insurance sector was opened for private sector in 2000 after the enactment of Insurance Regulatory and Development Authority act, 1999.
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