Parl panel rejects govt proposal to hike FDI cap in insurance

“The Committee feel the suggested policy stance of enabling a greater role for foreign capital in the insurance sector,may not necessarily have the desired impact…,” the report,tabled in Lok Sabha,said.

The panel,headed by senior BJP leader Yashwant Sinha,however,agreed with the need to bring in comprehensive changes in the archaic laws governing the insurance sector.

“Increased role of foreign capital may lead to the possibility of exposing the economy to the vulnerabilities of the global market,…flight of capital outside the country and also endangering the interest of the policy holders,” it said.

It further said that in view of the fact that the Finance Ministry could not convincingly justify the proposal,the Committee considers that any further hike in FDI cap in the present global economic scenario,may not be in the interest of the Indian insurance industry.

It said that the common man too would not stand to gain through insurance,particularly as a means of social security.

The Bill was introduced in Rajya Sabha in December 2008 with an aim to bring improvement and revision of laws relating to insurance business in the changed scenario of private participation. It was referred to the Standing Committee.

Last month,the government had to shelve its plan to allow 51 per cent FDI in the multi-brand retail amid stiff opposition from different parties,including some of its own allies.

The present FDI limit in the insurance sector is 26 per cent.

The House panel report also said at the time of opening of the sector to FDI in 1999,Parliament was assured that the statutory prescriptions as also the foreign investment regulations would ensure that the cap of 26 per cent on foreign equity participation in insurance companies would not,in any way,be breached.

The Committee has observed that many of the amendment proposals of the Bill are “riddled with infirmities”,which the Finance Ministry have,”at the behest of the Committee sought to rectify so as to enable them to serve the intended purpose”.

It further said the possibility of effectively tapping the alternate route of the domestic market for meeting the capital requirements of the sector has not been seriously assessed.

The Committee suggested to the government to consider formulating appropriate regulations and guidelines for enabling the insurance companies to tap the domestic market for meeting the capital requirements.

As per IRDA’s projections,the capital requirement of the insurance sector is estimated at Rs 60,000 crore to 66,000 crore in the next five years.

On health insurance,the Committee emphasised the necessity of having a well informed and trained force of health insurance agents who would appropriately brief the customers before selling the policies.