Cabinet defers decision on insurance FDI limit

Centre likely to make renewed attempt to garner support to raise FDI ceiling to 49% from 26%

Written by ENS Economic Bureau | New Delhi | Published: May 11, 2012 12:40:48 am

The Union Cabinet on Thursday deferred a final decision on the long-pending insurance Bill. Government sources indicated that the Centre is likely to make a renewed attempt to garner support from the opposition parties for a hike in the FDI limit to 49 per cent,up from the 26 per cent that was retained in the proposal submitted before the Cabinet.

“The consideration of the item has been postponed because 26 per cent foreign investment is already permitted,” Finance Minister,Pranab Mukherjee told reporters after the cabinet meeting.

The government is keen to bring in 49 per cent FDI in insurance,instead of moving a proposal that merely retains it at the current level of 26 per cent,said a senior finance ministry official after the meeting of the Union Cabinet here.

The Standing Committee,chaired by senior BJP leader and former finance minister Yashwant Sinha,in its report on The Insurance Laws (Amendment) Bill,2008 had suggested that FDI should not be increased to 49 per cent as was

provided in the Bill that was tabled in Rajya Sabha in 2008. It recommended that the “government should consider the alternate route of formulating guidelines enabling companies to tap the domestic market for capital requirements.”

The Committee had said that the policy stance of enabling greater role for the foreign capital in the insurance sector may not have desired impact. It said that the decision to hike FDI to 49 per cent seems to have been taken without

any sound and objective analysis of the status of the insurance sector. “Increased role of foreign capital may lead to exposing of the economy to the vulnerabilities of the global market,” report said.

Under the current provisions,a foreign company cannot have more than 26 per cent share in an insurance company in India. The Indian insurance companies and their foreign counterparts have long been demanding a hike in the FDI cap which would enable inflows into the cash-strapped insurance companies.

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