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India’s funds-starved insurance sector received a set back on Thursday, with the Modi government failing to gather the Opposition’s support for a Bill to raise the foreign investment cap in the sector from 26% at present to 49%. This spells bad news for a sector that could potentially give a fillip fillip to infrastructure funding by turning savings to investments.
Despite finance minister Arun Jaitley articulating the government’s readiness to accommodate some of the concerns of the Opposition parties, even the Congress party, which was all for the Bill when in government, refused to budge. As a result, the government had to refer the Bill to a select committee of the Rajya Sabha which will now submit its report in the first week of winter session of Parliament.
A delay in raising the foreign investment cap in insurance also holds back a similar hike in the respective limit in pension sector as the relevant law — the PFRDA Act — mandates that the foreign holding in the pension sector will be the same as in insurance.
Thursday's development came even as Primer Minister Narendra Modi is expected to visit the US by end September or early October, with plans to lure foreign investors to the Indian economy high on his agenda. India's insurance sector needs fund inflows from overseas of about $10 billion till 2019 as per an estimate by Deloitte.
The delay in the legislation, virtually pending since 2008 and which has a chequered history, would hamper the expansion plans in India of global insurers including AIG, Standard Life, MetLife, Sun Life, Prudential, Generali and Aegon, among others. Insurance penetration in India is currently 4%, denoting the stupendous potential for expansion of the market.
Some Opposition leaders expressed reservations over the proposal to allow foreign institutional investors within the composite foreign holding cap of 49% in insurance, and hence want to “study the Bill in threadbare” before it is tabled in Rajya Sabha.
The Modi government needs Opposition support for Insurance Laws (Amendment) Bill because while the BJP has a clear majority in Lok Sabha, it does not have a majority in Rajya Sabha even with its allies.
On Thursday, Jaitley informed lawmakers that the 15-member select committee with representatives from all major parties including the BJP, Congress, Trinamool Congress, AIADMK, BSP, SP and CPI(M), will now look into the Bill and submit its report in the first week of