The long-pending hike in foreign investment limit in insurance sector to 49% may soon become a reality with a Parliamentary panel endorsing a bill after incorporating Congress party's demand for a composite cap on such investments.
Approving a bill to amend the Insurance Act, the Select Committee, in its report to the Rajya Sabha, recommended a composite foreign investment cap of 49% which would include Foreign Direct Investment (FDI and portfolio investment.
At present only 26% 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% 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. The panel has recommended suitable amendment to the Securities and Exchange Board of India Act for the inclusion.
It also recommended that penalties on insurance companies be linked to seriousness of offences committed by them. It has suggested mechanism to ensure that there is minimum scope for subjective interpretation. The Standing Committee on Finance headed by senior BJP leader Yashwant Sinha in 2011 had rejected the proposal to hike FDI to 49% in the insurance sector, saying it may not have the desired effect and could expose the economy to global vulnerability.
Meanwhile, the Select Committee unanimously agreed not to bring down the paid-up equity capital in the health insurance sector as compared to the life and general insurance.
The panel suggested that the capital requirements may be retained at the Rs 100-crore level to ensure health insurers have adequate capacity for providing critical services to citizens, and it also pitched for giving top priority to this segment.
"The insurance Bill be passed," the Committee said, adding the government may take more measures as recommended by it. The committee suggested that the Law Ministry and the insurance regulator IRDA should modify the definition of the term "nominee" in order to remove any ambiguity. The Supreme Court had suggested that there was no need for two categories of nominees -- beneficiary nominee and collector nominee. It also recommended that adequate protective mechanism be instituted to ensure agents get their commission and the commission structure be determined by IRDA on market conditions.
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