This is a welcome sign for non-resident Indians and for the insurance companies operating in India to get the much-needed capital from their overseas partners.
Why is the enhancement necessary at this juncture and what is the rationale behind this move?
The insurance industry got liberalised more than a decade ago with the FDI limit of 26 per cent. Now, the sector has grown by leaps and bounds, requiring urgent infusion of an additional capital. Without this extra money, the expansion of the industry appears bleak. With the Indian partners shying away with their contribution due to financial constraints, it has become all the more necessary to enhance the limit to 49 per cent.
Going by the present trends in the industry, a conservative requirement of funds to the tune of Rs. 60,000 crore is needed for future expansion that is likely to happen in the next five to six years. This mega infusion of capital would be quite possible only with the hike of 49 per cent in FDI, which also envisages the overseas partner gain an upper hand in the investment portfolio much ahead of their Indian partners and stake a better claim in profit sharing.
What is in it for consumers?
Surprisingly it is not going to benefit the consumer in a big way. Of course, he remains a key target for all the insurance firms who try to capture maximum retail business from the general public. India is a market with low insurance penetration. In view of the tremendous potential for insurance firms to rope in more and more customers into their fold, the hike in FDI limits has augured well.
With newer insurance companies setting their shops in the country, the common man is provided with wider choice of insurance products to pick out the right one weighing the various parameters like reputation, service aspects and claim settling capabilities...
Bright future for insurance companies
Indian insurance sector is still regarded an attractive market for overseas firms to channelise their capital both in terms of medium and long term in comparison to the other economies where stagnation has crept in. The entry of more number of players in the insurance segment is believed to give a big boost to the job market, as recruitment of personnel would be done on a massive scale.
Considering the large population of uninsured masses and their growing per capita income, the future looks bright for the insurance. Industry experts say that the move is in line with the industry’s expectations and view it as a significant step in the right direction as the benefits reaped are by four interested segments: insurance industry, overseas investors, Indian citizens and, above all, the Indian economy.
Besides, the enhancement is likely to enable product innovation, customer service delivery and promotion of inclusive economic growth. The move is hailed by the government to help in financial inclusion initiatives.