Over the last few years, capital shortage had plagued the sector along with low degree of new player interest, which should see a reversal now.” Anuraag Sunder Insurance expert, PricewaterhouseCoopers India
MUMBAI : It has been a long time coming, but on Thursday when Finance Minister Arun Jaitley announced the proposal to hike the foreign direct investment in insurance companies to 49% from 26%, there was a loud cheer from the sector.
“Increasing the FDI limit to 49 percent will have a positive cascading effect on increasing household savings levels, fresh investment, new employment, insurance penetration and others,” V. Manickam, secretary general, Life Insurance Council of India, told IANS. He said the government’s move would attract more foreign players to enter the Indian market where the population of uninsured is around 50 crore. “With this move, we expect the sector to receive fresh capital infusion of around Rs.50,000 crore by 2020. The number of life insurance branch offices will go up from 10,000 to 30,000. The number of employees will go up to around 500,000 from the current 200,000,” Manickam said.
The sector has not been able to even tap the initial public offering route, despite a favourable regulatory framework, as foreign investors were keen to raise stake and not dilute their holding. Many companies, including HDFC Life and SBI Life Insurance, are eligible for conducting IPOs and some of these companies may make a move forward on this front, once the proposal is cleared.
Jaitley said that the proposal to raise the FDI for insurance companies was aimed at meeting the cash-strapped sector’s growth and expansion needs.
More positives
The comment from Jaitley that the long pending Insurance Laws (Amendment) Bill would also be taken up provided further cheer to the sector.
“Insurance Amendment Bill will be taken up by the parliament for consideration which is a positive step, as laws which are archaic should be revised, but we hope it happens soon,” Shashwat Sharma, partner at KPMG India said. Also, the move to increase the cap for tax savings investments under 80(C) of the Income Tax Act, by Rs 50,000 to
Rs 150,000, is seen as a key positive that can encourage additional investments in insurance.
