Update: Govt clears ordinance to hike FDI cap in insurance sector to 49 per cent

The government on Wednesday approved the promulgation of an ordinance to hike the foreign direct investment (FDI) limit in the insurance sector to 49 per cent from 26 per cent, as the legislation could not be passed in the Winter Session of Parliament, which ended on Tuesday.

"The Cabinet has cleared the Ordinance on insurance sector," sources said after the meeting of the Union Cabinet headed by Prime Minister Narendra Modi in the national capital.

The Insurance Bill, which has been pending since 2008 in the Rajya Sabha, seeks to increase the composite FDI limit in insurance firms from the current level of 26 per cent to 49 per cent.

The 49 per cent cap would include both FDI and foreign portfolio investments (FPIs).

The proposed hike in foreign investment limit to 49 per cent in the insurance sector has potential to attract up to US $7-8 billion (about Rs 50,000 crore) from overseas investors, giving a major boost to the segment.

The 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.

The Insurance Laws Amendment Bill, 2008 could not be taken up for discussion despite being approved by the Select Committee of the Rajya Sabha because of the uproar by opposition parties over conversion and other issues.

The government has blamed political obstructionism for the disruption of the Upper House, where the Prime Minister Narednra Modi- led NDA government does not have a majority.

There are 52 insurance companies operating in the country, of which 24 are in the life insurance business and 28 in general insurance business. In addition, GIC is the sole national reinsurer.

The 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.

Finance Minister Arun Jaitley said the Insurance Amendment Bill had been pending in Parliament for a 'very long time' although it was approved by the Standing Committee as well as the Select Committee of the Rajya Sabha.

"Even though the Select committee by majority has recommended the Bill for adoption, the same was not permitted to be taken up for discussions because of disturbances in the Rajya Sabha. The government therefore decided to recommend to the President the promulgation of the insurance amendment laws.

The Ordinance is exactly and verbatim of the recommendations of Select Committee," Jaitley said.

Talking about re-issuance of coal ordinance, the Finance Minister said the Lok Sabha has cleared the Bill, but the Rajya Sabha could not take it up for discussion.

"Along with the methodology for coal block auction for power sector and other sectors, the guidelines too have been cleared by the Cabinet. With the re-promulgation, the unfinished process of allocation of coal blocks will resume again," Jaitley said.

The move came against the backdrop of the Supreme Court verdict in September quashing allocation of 204 coal blocks to various companies since 1993.

The re-promulgation of the ordinance will enable the coal ministry to go ahead with its decision to give a total 101 mines, including 65 through auction, in the first phase.

On FDI policy liberalisation in the pharma sector, where 100 per cent foreign investment is permitted, the Finance Minister said within the same category, a distinct new sub category has been carved out with regard to medical devices.

"In this age of super specialisation, if medicines and pharma are one aspect, in which India has attained a certain amount of core competence, we still have not achieved that in medical devices, particularly, which are to be installed in human body for the purpose of treatment," Jaitley added.

Medical devices include instrument, apparatus, appliance, implant, material or other article.

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