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Govt 'goes slow' on FDI in insurance

April 12, 2005 09:23 IST

The finance ministry is going slow on the issue of hiking foreign direct investment in the insurance sector even as efforts are on to draft a Bill on insurance based on the feedback from the Insurance Regulatory Development Authority.

"We have been asked to go slow on FDI," a finance ministry official said. The official said the government would move ahead with the amendments to the Insurance Act 1938 after IRDA gave its feedback by June.

The finance ministry is waiting for the report of a 11-member committee of the IRDA, headed by KP Narasimhan. The committee is studying the recommendations of law commission.

The commission had submitted a report to the government recommending amendments in the Insurance Act, keeping in view the developments that had taken place, especially the passing of the IRDA Act in 1999.

While the commission has made specific recommendations pertaining to legal issues, it has asked the government to have other areas examined by experts.

The Narasimham panel will cover provisions relating to investments, sufficiency of assets as envisaged in Section 64VA of the Insurance Act, insurance surveyors (Section-64UM), tariff advisory committee (Section-64UA & 64 ULA) and shareholders funds and policyholders funds (Section 49).

The committee may also indicate any other Sections of the Act, which need to be amended in the light of the developments that have taken place in the insurance sector other than those covered by the commission's recommendations.

Even though the government had, in the Budget in 2004, announced its intention to hike FDI in insurance, it had been cautious in moving forward with the proposal.

Some of the arguments, which have been put forth against permitting higher FDI limits in the sector include the implications for resource mobilisation since public sector companies invest heavily in infrastructure projects.

In case of Life Insurance Corporation of India, which manages assets over Rs 3,00,000 crore (Rs 3000 billion), over 85 per cent of investments are in government papers.

There are also concerns that opening the sector will reduce the availability of resources since public sector insurance companies have a heavy exposure in infrastructure projects and their market share will decline considerably if foreign players are allowed to enhance their investments.

So far, foreign investments of Rs 878 crore (Rs 8.78 billion) have come into the insurance sector. Since opening up of the insurance sector in 1999, 21 private companies have been granted licences.

Insurance density, which was estimated at 370.80 in 1999-2000, has nearly doubled to 664.22 in 2002-03.

During the period, insurance penetration has also risen by 50 per cent, from 1.90 per cent to 2.86 per cent.

Insurance blues

BS Economy Bureau in New Delhi
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