The Finance Ministry has clarified that the 49 per cent limit on foreign investment in insurance will be a ‘composite’ one. That is, a combination of foreign direct investment (FDI) and foreign institutional investment (FII). Money through FDI will come into a company’s account while FII money will be between two investors in the stock exchanges. FDI does not require a company to be listed on a recognised stock exchange, but FII requires this norm to be fulfilled.
“Forty-nine per cent could entirely be FDI or FII. It may also mean part FDI and remaining FII. But one thing is clear — it is composite cap,” a senior Finance Ministry official told newspersons at the Economic Editors’ Conference.
He indicated that the final picture is likely to emerge at the time of tabling the official amendments in Parliament. Another option, he said, is to prescribe the foreign investment limit in the revised Bill and give details in the guidelines. Meanwhile, Finance Minister P. Chidambaram said that the Bill for raising the foreign investment cap and other provisions will be taken up during the Winter Session of Parliament.
Last week, the Cabinet approved official amendments to the Insurance Bill which include raising the foreign investment cap to 49 per cent from 26 per cent.
Stressing the need for higher foreign investment, the Finance Minister said: “The immediate requirement of capital for the insurance sector is estimated at around $5-6 billion.”
This additional money will help both, life and non-life insurance companies to increase ‘penetration’, that is, premium paid as a ratio of GDP.
Penetration level
At present, there are nearly 50 public and private sector life/non-life insurers.
For life insurance, the penetration is 4.4 per cent and for non-life business, a mere 0.76 per cent.
However, there is fear that the Opposition and some of the allies may not support the amendments in the Insurance Bill. But Chidambaram is hopeful.
He said that ‘by and large’ the provisions of the Bill are along the lines recommended by the Standing Committee for Finance and he does not expect any opposition to the entire Bill or most of its clauses. “There is just one point of opposition and we will meet BJP and other parties ahead of the Winter Session to seek their support,” he added.