Parliament passes Insurance Amendment Bill; raising FDI limit in sector from 49% to 74%

Enacting a Budgetary promise, the Lok Sabha on Monday, passed the Insurance (Amendment) Bill, 2021, paving way for a 74% Foreign Direct Investment (FDI) into India's insurance sector. While the Opposition staged a walkout during the passage of the Bill in the Rajya Sabha, the Bill saw a heated debate between Finance Minister Nirmala Sitharaman and NCP MP Supriya Sule in the Lower House. SItharaman had announced that the permissible FDI limit in insurance companies will be increased from 49% to 74% in her Budget speech on Feb 1.

Parliament passes Insurance Bill

Opposing the raise in the permissible FDI limit into the insurance, Sule pointed out that when the limit had been increased to 49% by UPA government, late BJP ministers Sushma Swaraj and Arun Jaitley had opposed it. Asking why govt had changed its mind now, she claimed that the amendment will hurt home-grown insurance sectors. Incidentally, ex-FM Chidamabaram had said, "It is good to see an increase in FDI limit in the insurance sector in 74% - which they had opposed when we wanted to allow 20% FDI," after Sitharaman's budget speech.

"This Bill (Insurance (Amendment) Bill, 2021*) was brought in by UPA & Sushma Swaraj-Arun Jaitley had objected to it. I ask FM & Govt what made them change mind because when Chidambaram had brought it, you spoke vociferously against it," said NCP MP Supriya Sule.

Meanwhile, Sitharaman assured that with FDI limit being raised doesn't mean foreign investment will increase. She said, "We've been hearing about FDI limit being raised & that it'll form another East India company. It's only an upper limit, increasing doesn't mean foreign investment will increase. Policy holders' funds will be invested only within India. FDI will be fairly established, it will not only bring in the capital but greater competition. Consumers will have more choices, there'll be best practices brought in from across the world."

What is the Insurance (Amendment) Bill, 2021?

According to PRS, the Bill amends the  Insurance Act, 1938 with the following clauses:

• The Bill increases the limit on foreign investment in an Indian insurance company from 49% to 74%, and removes restrictions on ownership and control.
• The Bill also removes Act's explanation for a foreign/domestic insurer incorporated in India, in which atleast (i) 33% capital is owned by investors domiciled outside India or (ii) 33% of the members of the governing body are domiciled outside India.

In its Budget speech, the government has announced strategic disinvestment of BPCL, Air India, Shipping Corporation of India, Container Corporation of India, IDBI Bank, BEML, Pawan Hans, Neelachal Ispat Nigam limited etc. to be completed in 2021-22, while two other banks apart from IDBI Bank and one General Insurance company is to be privatized. With LIC's IPO to begin in 2021-22, government also plans to ensure timely closure of sick or loss-making CPSEs. This is in line with the government's decision to increase FDI limit from 49% to 74% and allow foreign ownership and control with safeguards. The Centre also plans to allow CPSEs to be privatized, except in four strategic areas.