FDI hike in India takes another step forward

FDI hike in India takes another step forward

India’s legislature will vote on whether to raise the level of foreign direct investment in the country’s insurance sector after the cabinet cleared the bill to go to parliament. Finance Minister Arun Jaitley had announced his intention to put the bill to parliament either this session or next, but there were fears that intra-party opposition within the cabinet could slow its progress. Jaitley's sucess in gaining cabinet approval brings the law one step closer to fulfilment.

The Insurance Laws (Amendment) Bill aims to raise the foreign direct investment in insurance sector to 49%, from the current level of 26%.The bill specifies that management control of the insurance sector will remain with domestic companies which will under the new provisions still hold a 51% market share.

The director general of the Confederation of Indian Industry (CII) Chandrajit Banerjee, said that the increase in FDI limit will help attract much needed long term capital into the insurance sector which could help finance the Indian economy.

Supporters of the measure say that the capital infusion that would be brought about by the changes would help fund a more innovative and dynamic Indian insurance market.

India’s Economic Times praised the move but intimated that the market needed a substantial amount of capital if it is to improve the levels of penetration in the country.

“There is enormous potential for insurance in a country in which large swathes of the population don't have coverage,” said the newspaper. “But the industry needs a substantial amount of money to increase life insurance penetration, which was just 3.17% in 2012, while non-life coverage was even worse at 0.78%.”

Since the beginning of India’s insurance market in 2000, the number of insurers in the market has climbed from 7 insurers to 53.

Shares in a number of Indian insurers jumped following the cabinet announcement.Shares of Bank of India one of the owners of Star Union Daiichi insurance was up by 5.01% at Rs301($5), Max India, the owner of a life and non-life company, gained 3.76% increase in its share price to trade at Rs331.

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