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Wednesday, July 4, 2012

Government plan to increase FDI cap to 49% in the Insurance Sector

The decision which has been pending since May 10th this year and which had once been rejected by the Standing Committee in December 2011 finally goes in favor of the insurance companies.  In its latest report Government seems optimistic in raising the Foreign Direct Investment (FDI) limit in the insurance sector to 49% from its existing 26%. As per the current regulation a foreign player can have a maximum of 26% stake in the insurance companies. This change of almost doubling the FDI limit is seen as a need to give a push to the reforms laid out by the Government this year.

Over the years post liberalization of the insurance segment, both the domestic companies and their foreign partners had been requesting the need for an increased participation of the latter. However the Standing Committee contended by justifying that an increased presence of the foreign companies would unnecessarily expose the Indian segment to the risk and vulnerabilities of the foreign market.  However, the panel, headed by senior BJP leader Yashwant  Sinha, had agreed on the need to bring in comprehensive changes in the archaic laws governing the insurance sector.

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