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Cabinet clears 49% insurance FDI

Insurance, Securities Bills set to get House nod; govt also looking at judicial commission law.

Written by D K Singh , Surabhi | New Delhi |
Updated: July 25, 2014 2:28:21 am
Insurers will now be able to raise much needed capital from foreign partners and expand the business. (Source: Reuters) Insurers will now be able to raise much needed capital from foreign partners and expand the business. (Source: Reuters)

Two crucial pieces of legislation which have been hanging fire for long — the Securities Laws (Amendment) Bill and Insurance Laws (Amendment) Bill — are set to be cleared in the current session of Parliament. The NDA government is also learnt to be working on getting the Parliament’s nod for a legislation that provides for the setting up of the National Judicial Commission.

The Budget Session, originally scheduled till August 14, is likely to be curtailed by a week, after the passage of these pieces of legislations — at least the first two.

Setting the stage, the Cabinet Committee on Economic Affairs (CCEA) on Thursday cleared the plan to increase foreign direct investment (FDI) in the insurance sector from the existing 29 per cent to 49 per cent. It also cleared the Securities Bill, aimed at empowering market regulator SEBI with raid, search and seizure powers to crack down on ponzi schemes and investment frauds.

To address concerns about the powers to raid — as voiced by the parliamentary standing committee on finance earlier — the CCEA was learnt to have provided for setting up special courts in Mumbai to authorise such action. The previous regime was of the view that an internal authorisation by SEBI chairman should be sufficient. The UPA government had taken the ordinance route twice to give these powers to the SEBI, but it had lapsed on both occasions.

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Official sources said both the Insurance Bill and the Securities Bill will be passed by Parliament in this session as there is political consensus on them. Given that the previous UPA government pushed for both the Bills, the NDA government is confident of securing the Congress’s support in Parliament. Congress sources said Finance Minister Arun Jaitley had got in touch with them on the Insurance Bill and the party had assured its support.

If the government’s move goes through, it will end an over eight-year logjam in the insurance sector where, despite repeated efforts, FDI has remained capped at 26 per cent. According to the proposal approved by the CCEA, the insurance sector would have a composite FDI cap of 49 per cent. While FDI up to 26 per cent would be under the automatic route, companies would have to take approval from the Foreign Investment Promotion Board for more foreign investment.

Significantly, voting rights of the foreign partner have not been capped, although insurance firms will be under the management and control of the Indian partner. This would mean that the Indian partner would have the right to appoint a majority of directors, and be able to control management and policy decisions.


“The issue on voting rights will have to go to Parliament. But we prefer a 49 per cent cap without any riders,” Finance Minister Arun Jaitley had said earlier.

Officials indicated that the change in stance came just before the Union Budget. “It was decided that not too many restrictions, such as a cap on voting rights, would be imposed on the foreign partner, but the interests of the Indian partner would also be protected,” said a senior official.
Jaitley had announced the government’s intent to liberalise the sector in the Budget, and the move is seen as a signal of the government’s intent to encourage business and investments.

Insurers will now be able to raise much needed capital from foreign partners and expand the business. According to estimates, the raising of the cap could bring in as much as $ 6 billion in funds to the country.


Meanwhile, in the backdrop of the recent controversy over Gopal Subramanium’s proposed elevation to the Supreme Court and former SC judge Markandey Katju’s controversial claims regarding the appointment of a High Court judge, the government is learnt to be keen to get the Parliament’s nod for a legislation to set up a National Judicial Commission which would replace the collegium system of appointments to the Supreme Court and High Courts, giving the executive a say in the matter.

Sources, however, said that Law Minister Ravi Shankar Prasad is still working on the proposed legislation and it was not clear whether it would be ready in time for the Parliament to consider and pass it in the current session. It was the previous NDA regime that had first brought a legislation to replace the collegium system of appointments, but this had lapsed in 2004. The UPA II government had resumed the process, bringing a Constitutional amendment Bill to establish the said commission, but it remained pending in the Rajya Sabha.

Reacting to the CCEA’s decision on the Insurance Bill, Rajesh Sud, CEO and Managing Director, Max Life Insurance, said, “It is heartening to see that the central government is acting quickly on policy decisions. Once approved by Parliament, this move should bring in the much required long-term capital for the sector. It will also bring in domain capital which is of critical importance in this phase of growth of life insurance industry.”

Chandrajit Bannerjee, director general, CII, said, “Capital infusion in the insurance sector, through greater FDI, would ensure innovations on product design and distribution, better risk management, introducing superior technology and greater investments.”

However, some insurers remained cautious. “We will wait until it is approved by Parliament. The Bill was taken up by the previous government also but could not be enacted,” said an executive with a private insurance firm.


The proposal to raise the FDI cap has been pending since 2008, when the UPA government introduced the Insurance Laws (Amendment) Bill to raise foreign holding in insurance joint ventures to 49 per cent from the existing 26 per cent.

The Bill could not be taken up in Rajya Sabha because of opposition from several political parties, including the BJP.
The insurance sector was opened up for private players in 2000 after the enactment of the Insurance Regulatory and Development Authority (IRDA) Act, 1999.

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First published on: 25-07-2014 at 02:28:10 am

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