The long-pending Insurance Laws (Amendment) Bill looks set to get parliamentary approval early next week.
Hours after a parliamentary select committee tabled a report recommending raising to 49% the cap on foreign investment from 26% in insurance joint ventures, the Union cabinet approved the draft bill, demonstrating the government’s urgency to push through economic reforms.
The changes, once approved by Parliament, will mark one of the biggest reform measures taken by the Narendra Modi-led NDA government.
Insurers need funds to maintain healthy capital base, offer a wider bouquet of products, protect consumer interests against insolvency and deepen insurance penetration in India.
Experts said that rising costs of hospitalisation, especially in private hospitals, demonstrates the need for increasing insurance penetration in India, for which companies need additional capital to the tune of Rs 36,000 crore over the next five years.
Just 4% of Indians have any form of insurance coverage, according to industry figures.
The bill, first introduced by the UPA government in Rajya Sabha in 2008, has been long delayed due of lack of political consensus. The Congress and other opposition parties had blocked its passage during Parliament’s monsoon Session, demanding that it be referred to a parliamentary select committee for further consideration.
Given that the government has addressed the concerns of the main opposition Congress, the bill is set to have a smooth sail in Rajya Sabha also. The government is likely to introduce the bill in Parliament on Monday.
The move to ease the foreign investment ceiling will come with a rider that management control of these companies will remain with Indian shareholders.
“The bill is aimed at removing archaic and redundant provisions in relevant legislations and to enable the insurance sector to work for the betterment of the insured with greater efficacy,” a government statement said.
A higher FDI cap in the insurance sector will automatically ease FDI norms in the pension sector.
The committee, headed by BJP MP Chandan Mitra, tabled its report on Wednesday that carried dissenting notes from Trinamool Congress, Samajwadi Party, JD(U) and CPI (M) members.
The insurance sector was opened up in 1999 by the then BJP government but calls for raising the ceiling for foreign investment have been held up for more than a decade.