Budget: Insurance FDI cap raised to 49%

In a big relief to the capital-starved private insurance sector, Finance Minister Arun Jaitley on Thursday proposed raising the foreign direct investment cap from 26 per cent to 49 per cent.

"The insurance sector is investment starved.

“Several segments of insurance sector need expansion.

“The composite cap of the insurance sector is proposed to be increased to 49 per cent from the current level of 26 per cent with full management and control through the Foreign Investment Promotion Board route," he said while presenting the Budget for 2014-15.

The move would help insurance firms to get much needed capital from overseas partners.

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The proposal to raise FDI cap has been pending since 2008 when the previous UPA government came up with Insurance Laws (Amendment) Bill to hike foreign holding in insurance joint ventures to 49 per cent from the existing 26 per cent.

He said the government will take up the Bill soon.

On defence sector, Jaitley said the composite cap of foreign exchange is being raised to 49 per cent with full Indian management and control through the FIPB route.

Currently, the government permits 26 per cent FDI in defence manufacturing.

"India today is a largest buyer of defence equipment in the world. Our domestic manufacturing capabilities are still at a nascent stage.

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"We are buying substantial part of our defence requirements directly from foreign players, companies controlled by foreign governments and foreign private parties are supplying our defence requirements to us and at a considerable outflow of foreign exchange," he added.

Further to encourage development of smart cities which will also provide habitation for the new middle class, the Finance Minister announced that the requirement of the built up area and capital conditions for FDI is being reduced from 50,000 sq m to 20,000 sq m and from $10 million to $5 million respectively with a three years post completion lock in.

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