The increase in FDI limit in the insurance sector may attract Rs. 30,000 crore that the industry requires over the next five years, Insurance Regulatory and Development Authority has said.
A day after the Centre announced its decision to allow up to 49% Foreign Direct Investment in insurance, Irda Chairman J Hari Narayan said the move was essential as inflows are necessary for the sector to grow at 11 to 12%.
"It (the FDI) will give boost to the insurance sector. And it is required any way. Otherwise, we don't have required capital for the insurance sector," Hari Narayan told PTI.
"If the insurance sector has to double then it would require at least Rs. 30, 000 crore (in the next five years)," he added.
Carrying forward the big-ticket reforms agenda, the government on Thursday decided to move ahead with its proposal to hike FDI ceiling in the insurance sector to 49%, from 26% at present.
The decision was taken by the Union Cabinet, headed by Prime Minister Manmohan Singh.
The government also gave the green signal to foreign investment in pension funds, saying the FDI limit could go up 49% in line with cap in the insurance sector.
According to Irda, the insurance sector constitutes around 4.5% to the GDP. Last year, the total premium collected was at Rs. 2.83 lakh crore.
With the increase in the FDI limit, the percentage of contribution from insurance sector to the GDP may also go up, Hari Narayan said.
"This move will increase insurance sector share in the GDP also. If the GDP also raises then the percentage may remain marginally high," he said.
The premium income of the general insurance industry, comprising 21 private and four public sector insurers, stood at Rs. 27,942 crore in the first five months of the current fiscal. It was 18% higher than Rs. 23,748 crore in the corresponding period in 2011-12.
However, the premium income of life-insurance industry declined by 15% to Rs. 34,358 crore in the first five months of the current fiscal, compared to Rs. 40,654 crore in the same period last year.