The Lok Sabha has passed Insurance (Amendment) Bill 2021 which seeks to amend the Insurance Act, 1938. The amendment will increase the ceiling limit of foreign investment allowed in Indian insurance companies. The Bill provides to increase the foreign direct investment limit from existing 49 per cent to 74 per cent.
Under the new structure of 74 percent FDI limit, the majority of directors on the boards and key management positions will be resident Indians with at least 50 percent directors will be independent directors. A specified percentage of profit will be retained as general reserve.
This means that Indian promoters in an insurance joint venture would have the right to accept or reject any board decision related to company matters. This is termed as Indian management control.
It also has a provision for the removal of restrictions on ownership and control of insurance companies.
Rajya Sabha already approved the aforementioned Insurance (Amendment) Bill 2021 last week.
The Bill will now be presented to the president for his assent.
Finance Minister Nirmala Sitharaman while speaking on the bill said that the insurance sector requires a huge and long term investment as it is a capital intensive sector.
She said, raising the ceiling limit to 49 per cent in the year 2015 has resulted foreign direct investment of 26 thousand crore rupees in the past five years and assets under management registered a growth of 76 per cent.
She said, the government is committed to provide insurance cover to all the people and more resources will grow the number of insurers.
She assured that policy holders’ fund will only be invested in the country. Countering the oppositions’ accusation of privatization of LIC, the Minister said that this Bill has nothing to do with the LIC in specific but for the entire insurance sector.
Speaking against the Insurance (Amendment) Bill 2021, Congress MP Manish Tewari said,
“This bill has large and ominous implications in the times to come. This bill to raise FDI in insurance sector from 49% to 74% cannot be seen in isolation. It is part of a strategy for privatization of Banks and disinvestment in Public Sector Undertakings.“
Ms. Sitharaman said the Insurance (Amendment) Bill 2021 has been brought after extensive consultation with multiple stakeholders and it has all necessary provisions to safeguard insurers’ interest.
She said, this Bill will also safeguard the interest of 24 lakh employees engaged in the private insurance sector in addition to 17 lakh working in public sector insurance companies.
The Act requires insurers to hold a minimum investment in assets which would be sufficient to clear their insurance claim liabilities. If the insurer is incorporated or domiciled outside India, such assets must be held in India in a trust and vested with trustees who must be residents of India.
The explanation states that this will also apply to an insurer incorporated in India, in which at least: (i) 33% capital is owned by investors domiciled outside India, or (ii) 33% of the members of the governing body are domiciled outside India.
Supriya Sule of NCP raised the question over changing the ceiling limit saying that more foreign investment will make the self-reliant programme weak.
Echoing the same view, Dr. S T Hasan of the Samajwadi Party said that foreign companies will take the money out which will hamper the interest of policyholders.
Shyam Singh Yadav of BSP also opposed the Insurance (Amendment) Bill 2021 saying that more weightage must be given to the Indian companies rather than foreign companies.
Rahul Shewale of Shiv Sena said that the claim that this legislation will help in attracting foreign investment is elusive.
On the other hand, Jagdambika Pal of BJP said, raising the FDI limit will attract Rs 15,000 crore worth of investment in the upcoming three years. He said, it will also help in increasing the penetration of insurance and providing insurance cover to common people.
Another party MP Ganesh Singh said that this legislation will increase competition, social security coverage and provide affordable insurance policies to common people.
Issues/ Objections raised on the Insurance (Amendment) Bill 2021 during debate
- The present actual share of FDI in insurance sector is less than the current limit of 49%. Hence, there is no justification for increasing the limit to 74% when in 5 years, the target of 49% has not been achieved.
- The Bill does not contemplate a provision for preventing financially weak/ fraud foreign companies from entering the Indian insurance sector.
- Provision of the Insurance (Amendment) Bill 2021, allowing foreign ownership contemplates that the Government may prescribe certain safeguards. However, the provision is very vague and there is no specific mention as to what steps will be taken by the Government to ensure that money of common man is not misused.
Reciprocation to the Issues Raised
No company will be compelled to raise foreign investment, Finance Minister stated and proposed that upper limit is not mandatory and there will not be an automatic increase in the stake of foreigners. The money deposited by Indian depositors can be invested by these foreign companies in India only and they will not be permitted to take this money outside the country. On the issue of privatization, she emphasized that about half of market share of the Indian insurance sector is already held by private companies. She revealed, the public sector insurance market share is merely 38.78%, whereas private sector enjoys 48.03% of the market share.
Read the Bill here: