The Rajya Sabha last week passed the Insurance (Amendment) Bill, 2021 - which seeks to raise the foreign direct investment (FDI) cap in insurance sector to 74% from the current 49% - by voice vote, amid assurance by finance minister Nirmala Sitharaman that sufficient safeguards had been built in to protect the interests of policyholders.
A higher foreign investment cap will pave the way for several international investors to increase their stake in Indian ventures, something that they have been eyeing, since the sector was opened to private players over two decades ago.
The bill was passed amid a walkout by the opposition parties. Earlier, Mallikarjun Kharge, leader of the Opposition in the Upper House, demanded that the bill be referred to a standing or select committee, arguing that its provisions were against people’s interests. This led to a string of adjournments, amid sloganeering and din in the House. However, the demand to refer the bill to a Parliamentary panel, endorsed by many opposition parties, was not accepted by the government as it underlined that investment was needed in the immediate future, particularly in view of the hit that the economy had taken due to Covid-19.
While responding to issues raised by the Opposition regarding the impact of the foreign control on people’s money invested in insurance schemes, the finance minister said that the insurers would continue to be barred from investing policyholders’ funds outside India and they will also be required to retain a specified portion of their profits in the general reserve. The reserve will protect the citizens’ claims regardless of the foreign investor’s financial condition, she said.
Stating that foreign control and management was being allowed with enough safeguards, Sitharaman said the majority of directors on the board and key management persons would be resident Indians and subject to the law of the land, with at least half the board comprising independent directors.
Stating that raising FDI limit to 74% was not a compulsion but only a maximum limit for receiving money from a foreign company, the minister said it was for the company and promoters to decide to what extent they would allow the FDI. She added that higher FDI would help supplement domestic long-term resources, with a view to furthering insurance penetration in the country.
