Government inches closer to raising foreign investment cap in insurance

New Delhi: The long pending hike in foreign investment limit in insurance sector to 49 per cent may soon become a reality with the Parliamentary panel endorsing the government bill after incorporating Congress party suggestion of a composite cap on overseas investments.

Approving a government bill to amend the Insurance Act, the Select Committee in its report to the Rajya Sabha recommended a composite foreign investment cap of 49 per cent which would include Foreign Direct Investment (FDI) and portfolio investment.

At present only 26 per cent FDI is allowed in private sector insurance companies. The hike in foreign investment limit is estimated to attract about Rs 25,000 crore of overseas funds in the sector. "The Committee recommends that the composite cap of 49 per cent should be inclusive of all forms of foreign direct investment and foreign portfolio investments," the report said.

With the Congress, which has been pressing for a composite cap, pacified, the government is likely to bring the Bill for consideration of the Upper House as early as next week. The Congress support for the Insurance Laws (Amendment) Bill, 2008, is crucial as the ruling NDA does not have majority in the Upper House.

The bill, which has been pending since 2008, may not have a smooth ride in the Rajya Sabha with certain political parties opposing further opening of the insurance sector to foreign investment. The report of the Select Committee contains dissent notes from four members -- P Rajeev (CPI-M), Derek O'Brien (TMC), Ram Gopal Yadav (SP) and K C Tyagi (JDU). The Rajya Sabha had in August appointed a 15-member Select committee to scrutinise the long pending Insurance Laws (Amendment) Bill, 2008.

The Bill was held up for nearly six years on account of political differences. The panel, headed by Rajya Sabha MP Chandan Mitra, has suggested inclusion of a person from the insurance industry in the Securities Appellate Tribunal as an expert.