Insurance sector receive Rs 53,000 crore FDI in the 9 years
Banking and Finance
6 min read
According to the Financial Services Secretary, Union Ministry of Finance Vivek Joshi, the insurance sector in India has received Rs 53,900 crore as foreign direct investment (FDI) in the last 9 years(December 2014 and January 2024). According to the Financial Services Secretary, 70 companies operate in the country's insurance sector.
FDI in the Insurance sector
- The insurance sector was opened to the private sector in August 2000 on the recommendation of the R.N. Malhotra committee, set up by the government of India in 1993 to reform the Insurance sector. The Malhotra committee recommended opening the insurance sector to the private sector and allowing foreign investment in the sector.
- In 2000, the government of India allowed the private sector in the insurance sector, and foreign companies were allowed ownership of up to 26 per cent.
- In 2015, the government of India increased the FDI limit to 49 per cent and then to 74 per cent in 2021.
- The FDI in the insurance intermediaries was increased to 100 per cent in 2019.
Increase in Insurance Penetration and Density in the country
- According to Vivek Kumar, the insurance sector penetration increased from 3.9 per cent in 2013-14 to 4 per cent in 2022-23. The insurance sector penetration refers to the ratio of the total insurance premiums paid in a year to the country’s Gross Domestic Product(GDP). It indicates the spread of the insurance sector in the country.
- The insurance density rose from USD 52 in 2013-14 to USD 92 in 2022-23. The insurance density is calculated as the ratio of insurance premiums to the country's total population.
- An increase in insurance penetration and density refers to the growth and development of a country's insurance sector.
What is Foreign Direct Investment
The terms ‘Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) have been defined in the Foreign Exchange Management Act (FEMA) 1999.
The FDI means investment made by a person resident outside India through capital instruments
- in an unlisted Indian company; or
(b) in ten per cent or more of the paid-up equity capital of a listed Indian company.
Foreign Portfolio Investment (FPI) is any investment made by a person resident outside India through capital instruments where such investment is less than ten per cent of the paid-up share capital of a listed Indian company.
Here, capital instruments mean shares (equity/preferential/warrant shares)and non-convertible debentures issued by an Indian company.
Sectors in which FDI is not allowed
Almost every sector of the economy has been opened by the government of India for FDI except in the following sectors:
(i) Lottery business includes government/private lottery, online lotteries, etc.
(ii) Gambling and Betting, including casinos etc.
(iii) Chit funds
(iv) Nidhi Company
(v)Trading in Transferable Development Rights (TDRs)
(vi) Real Estate Business or Construction of Farm Houses: Real estate businesses shall not include the development of townships, construction of residential /commercial premises, roads or bridges, and Real Estate Investment Trusts (REITs) registered and regulated under the SEBI (REITs) Regulations 2014.
(vii) Manufacturing of cheroots, cigars, cigarillos, and cigarettes, of tobacco or of tobacco substitutes
(viii) Activities/sectors not open to private sector investment, e.g.(a) Atomic Energy and (b) Railway operations (other than permitted activities).
(ix)Foreign technology collaboration in any form, including licensing for franchise, trademark, brand name, or management contract, is also prohibited for Lottery Business, Gambling, and Betting activities.
