New Delhi: The Finance Ministry on Saturday said the Ordinance for the insurance sector reform will help companies raise capital through new and innovative instruments, besides promoting economic growth and job creation.
"The content of the Ordinance is also aimed at allowing insurance companies to raise capital through new and innovative instruments, which would help capital intensive insurance industry to garner resources for business growth," the ministry said in a release.
The Insurance Laws (Amendment) Ordinance 2014, which has been promulgated by the President, will be taken up for consideration and passage in the next session of Parliament beginning February.
The amendment is aimed to enhance the FDI cap in an Indian insurance company from 26 per cent to 49 per cent with the safeguard of Indian ownership and control.
The hike in foreign investment limit in the insurance sector has potential to attract up to $7-8 billion (about Rs 50,000 crore) from overseas investors, giving a major boost to the segment.
The proposed step, the ministry said, is also for furtherance of the broad objective of deepening the reform process in the economy in general and the insurance sector in particular.
"This is of paramount importance to create an investor-friendly environment in the country to achieve the various goals related to enhanced investment, economic growth and job creation in the economy," the ministry said.
There are 52 insurance companies operating in India, of which 24 are in the life insurance business and 28 in general insurance business. In addition, GIC is the sole national reinsurer.
Insurance penetration in India is very low compared to the global average.
The sector requires capital to expand and ensure better access to insurance services, especially in rural areas and for economically weaker sections.
Enhancement of the foreign equity cap to 49 per cent with the safeguard of Indian ownership and control is a critical aspect of the Ordinance, which will potentially enhance capital availability, the Finance Ministry added.
The government further said the Ordinance will also substantially enhance penalty provisions to ensure compliance with Insurance Laws by companies, which is essential to uphold the consumer interest.
The Insurance Laws Amendment Bill, 2008 could not be taken up for discussion despite being approved by the Select Committee of the Upper House because of the uproar over the conversion and other issues.
Total capital deployed in the private life insurance sector is close to Rs 35,000 crore. With FDI at 26 per cent, foreign equity is close to Rs 8,700 crore.
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