With an aim to attract long-term investment from overseas, the Indian government is planning to increase the Foreign Direct Investment (FDI) limit for insurance firms to 74% from the current 49% in the upcoming Union Budget.
The Insurance Regulatory and Development Authority of India (IRDAI) is seeking inputs from the industry on government instructions and a report is expected to be submitted soon, said an ET report quoting a source aware of the development.
On December 2, IRDAI in a letter to insurance firms had sought the opinion of stakeholders to increase the limit of FDI in the insurance sector.
The development comes two months after the govt had increased the FDI limit in insurance intermediaries to 100%. This was done to increase overseas investors attention in the Indian insurance market.
If this comes through, it will be the second raise in FDI limit for the sector in the past four years.
Earlier in 2015, the government had increased FDI in insurance under the automatic route to 49% from 26% for insurance broking, insurance companies, third party administrators, surveyors, and loss assessors.
The increase in FDI limit attracted many overseas investors who increased their stakes in Indian insurance joint ventures.
The government will have to amend the Insurance Act, alter provisions pertaining to Indian ownership, monitor the solvency of foreign firms to facilitate the 74% investment limit.
In July, Finance Minister Nirmala Sitharaman had talked about examining suggestions from stakeholders to open up FDI in the insurance sector.
The insurance sector in India still has potential to grow as it has a very low penetration level across the country. Only 4% of people in India are said to have life cover.
Currently, India has 24 life insurance and 34 general insurance firms.