Blitz Bureau
Finance Minister Nirmala Sitharaman has said that the Government is considering a proposal to increase the foreign direct investment (FDI) cap in insurance companies from the current 74 per cent to a full 100 per cent. While the enabling legislation for this potentially game-changing policy shift has not been tabled in the current Parliament session, the Government may take it up in the Winter Session.
This proposed reform comes at a time when India’s insurance sector is poised for sustained expansion. According to Sitharaman, the industry is expected to grow at an average annual rate of 7.1 per cent over the next five years—outpacing the global and even emerging market averages.
The Finance Minister’s written response in Parliament underlined that increased foreign capital could unlock the sector’s full growth potential by injecting much-needed funds, technology, and competitive dynamism.
Importantly, Sitharaman clarified that the proposed 100 per cent FDI cap is not a mandate but an “enabling provision.” It would allow interested insurers to raise their foreign equity share without being constrained by the existing limit. More significantly, it would remove the compulsion for foreign players to scout for Indian partners to hold the remaining 26 per cent, thereby lowering entry barriers and simplifying the process of setting up operations in India.
This liberalisation could be transformative. By allowing full foreign ownership, the insurance sector would likely see a new wave of stable and long-term capital. Such inflows could help deepen market coverage, drive digital innovation, and improve underwriting practices. It could also enhance insurance penetration in India, which continues to lag behind many comparable economies.
At the same time, the proposed Insurance Bill goes beyond just raising the FDI ceiling. It aims to introduce composite licensing that would permit life, general, and health insurance products to be offered by a single entity. This would provide insurers with greater operational flexibility while giving consumers more integrated offerings. The Bill is also expected to ease repatriation norms for dividends and relax regulations concerning the appointment of key management personnel in foreign-owned firms, thereby further improving ease of doing business.
But transparency and easier compliance norms, plus level-playing field, essential to attract foreign firms
However, most insurers have not fully utilised the existing limit. Only four out of 19 life insurance companies have reached the 74 per cent ceiling. None of the 20 general insurance firms have done so. As of December 2024, foreign ownership in life insurers averaged 47.82 per cent, and in non-life insurers, it was even lower at 29.46 per cent.
The reasons, as Sitharaman pointed out, vary from company to company. Factors like solvency norms, business projections, and promoter strategy shape decisions on capital structure. However, the muted uptake so far also signals that capital availability is not the only bottleneck—structural and regulatory frictions still need ironing out.
Raising the FDI cap is a bold move, but unlocking its benefits will require complementary reforms that promote transparency, reduce compliance burdens, and ensure a level playing field. If done right, the change could usher in a more competitive, better-capitalised, and technology-forward insurance industry, just when India needs it most.