New Delhi, July 28 (IANS) With the increase in foreign direct investment (FDI) limit from 74 per cent to 100 per cent for insurance companies, the government aims to unlock the full potential of the Indian insurance sector, which is projected to grow at 7.1 per cent annually over the next five years, outpacing global and emerging market growth, Finance Minister Nirmala Sitharaman said on Monday.

According to the minister, this is an enabling provision which will help the interested insurers to explore hiking the FDI percentage.

“Further, this will eliminate the need for foreign investors to find Indian partners for the remaining 26 per cent, easing the process of setting up their operations in India, effectively increasing the number of insurers in the country,” she said in a written reply to a question in the Lok Sabha.

Removing the FDI cap will attract stable and sustained foreign investment, increase competition, facilitate technology transfer, and improve insurance penetration in the country, FM Sitharaman noted.

Section 2(7A) (b) of the Insurance Act, 1938, prescribes the upper limit of FDI in an insurance company.

The decision to increase the FDI component in a particular insurance company is made by its promoters, depending upon various factors such as the capital requirement of the company, solvency requirement, future business plans, etc, according to the government.

The equity share capital of life insurers was Rs 24,110 crore, with the FDI part at Rs 11,529 crore (as on December 12, 2024), as per the IRDAI’s data.

FM Sitharaman also said that India offers a compelling growth opportunity for foreign banks, and the government is actively encouraging foreign investment in the banking sector.

In April, addressing the India-UK Investor Roundtable discussion in London with around 60 investors, representing various pension funds, insurance companies, banks and other financial institutions in London, the Finance Minister outlined priorities of the government for enabling sustained economic growth and investment opportunities with the policy support that is shaping New India.

She said that with an expanding middle class and a strong and stable policy environment, India is set to become the sixth largest insurance market by 2032, with the expected growth at 7.1 per cent CAGR from 2024-2028 – one of the fastest growing insurance markets among G20 countries.

–IANS

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