FDI in insurance, a long way to go?

Insurance players believe FDI proposal in their sector will take at least a year or two to be approved

Even as the big ticket reforms announced by the government including foreign direct investment (FDI) in multi-brand retail and aviation are yet to sink in among the United Progressive Alliance (UPA) allies and the opposition, other significant reforms like raising the FDI in insurance to 49 per cent and pension are still stuck. Adding to this, reforms like the banking, pension and insurance amendment bills are still in a logjam. Insurance players believe that the FDI proposal in their sector will take atleast a year or two to be approved.

Two weeks ago, the finance ministry had cleared the proposal to bring about 49 per cent FDI in the insurance and pension sector. The current ceiling for FDI in this sector is 26 per cent. Both the domestic and foreign players in the insurance sector have been lobbying for the cap to be raised.

The 49 per cent FDI for insurance and pension was mooted during the tenure of the former finance minister Pranab Mukherjee, but the decision to approve the proposal was deferred by the cabinet. Only after it is cleared by the cabinet, the FDI proposal will come in to the Parliament for debate.

Adding to this was the period of policy paralysis period in the government, wherein a standing committee headed by Yashwant Sinha of Bharatiya Janata Party had suggested that the ceiling should be maintained at 26 per cent, the path for opening up the insurance sector was blocked.

The FDI proposal for this sector, which is a part of the insurance amendment bill, would have been a welcome reform, especially for insurance industry players planning to go public. Companies in the insurance space have postponed their decision to come up with an initial public offer, owing to fears of lower valuation if the FDI cap is not raised.

Insurance players are of the view that the 49 per cent FDI issue has been delayed, as it not a priority for neither the government nor the opposition. “Taking a cue from the recent war-of-words between the UPA and the opposition on the FDI, we do not expect it to be passed any time soon. It would definitely be a welcome change for an industry that needs a capital infusion of more than $10 billion in the next five years,” said the chief executive officer of a private life insurance company.

Another senior executive from a large private life insurance firm added that the indications from the Centre showed that the proposal would come to the Parliament only by second half of next year. “When the 49 per cent insurance FDI proposal first came up, the entire industry had begun to gear up for the changes. But later, we understood that it was a difficult reform to be passed in the Parliament. We will prepare for the changes, as and when the proposal enters the Lok Sabha,” he said.

http://www.business-standard.com/india/news/fdi-in-insurancelong-way-to-go/186943/on