House Cover After 7 years, changes in govt & U-turns by various parties, Parliament finally okays the I-Bill raising FDI ceiling in the sector to 49%
It took seven years, changes in government and U-turns by various parties, but lawmakers finally came good on India’s pledge to raise the overseas investment in insurance on Thursday night. After a short delay when the Left parties insisted on a vote being taken on some amendments to register their opposition, Rajya Sabha members approved lifting the ceiling to 49% from 26%, marking a significant success for the Narendra Modi government in getting a major economic reform through Parliament.
The Insurance Laws (Amendment) Bill had been passed by the Lok Sabha earlier this month but ran into opposition in the Upper House, where the government lacks a majority. But the government’s floor management was much better this time around, with BJP having convinced Congress to support the legislation.
The move, which will replace an emergency decree issued last year, was welcomed by the industry . Bharti Group boss Sunil Mittal said joint venture partner Axa would be raising its investment to the new limit.
“This is a highly positive development which will bring the much needed investments for the growth of the insurance industry,“ said Mittal. “It also underlines the government’s commitment to take forward its reforms agenda and drive economic growth while generating employment opportunities. Bharti and Axa remain fully committed to their insurance JVs and we can confirm that Axa will step up their equity investment to 49%. Bharti will soon move the application to FIPB (Foreign Investment Promotion Board) as per the new FDI (foreign direct investment) guidelines.“
Chanda Kochhar, managing director & CEO of ICICI Bank, said: “The passage of the insurance Bill is a welcome and long-awaited development. It signals the commitment of the government to implementing reform and attracting global capital to support India’s growth.“ Welcoming the development, SBI Chairman Arundhati Bhattacharya said, “With financial inclusion proceedings in full force, the timing of increase in limit for FDI in the insurance sector is a blessing in disguise. In our estimate, the FDI limit hike in insurance could result in immediate inflow of around Rs 20,000 crore. Furthermore, FDI hike in insurance is de jure increase in FDI limits for pension sector also.“
The passage of the Bill will also empower the Insurance Regulatory & Development Authority to draw up regulations aimed at the betterment of the industry, similar to what the Securities & Exchange Board of India does for capital markets, doing away with the need for it to approach Parliament for even minor changes.
The move could also presage the emergence of a new market for reinsurance in India with the legislation providing for the entry of global companies such as Berkshire Hathway , Munich Re, Lloyds of London and Swiss Re. They can operate in India through branches similar to multinational banks, providing for flexibility.
The passage of the legislation also alleviates concerns about policies getting stuck owing to resistance in the Upper House.
“It will be seen as a signal that the government is able to move amendments and Parliament is functioning,“ said Amitabh Chaudhry , managing director & CEO of HDFC Life.“Lots of new rules will come in.“
Among those set to raise their holdings in joint ventures are Prudential and Bupa of the UK, Nippon Life of Japan and Metlife of the US. It’s estimated the move will bring as much as $3-3.5 billion in FDI, boosting India’s foreign exchange reserves. Almost all the overseas firms had committed to investing more after the ordinance was promulgated in December last year. The government has already framed rules for the sector based on the ordinance and these could be adopted after the amended law gets the president’s nod.
“The regulation bringing in additional capital will stimulate growth of Indian life insurance,” Hiroyuki Nishi, managing director of Nippon Life, told ET in an interview recently. “Also, attracting foreign insurers to come to the market will bring in new ideas and experience. We are looking at this as a huge business opportunity.” The Rajya Sabha saw a relatively peaceful debate Thursday on the insurance bill moved by minister of state for finance Jayant Sinha, which was in sharp contrast to the acrimonious scenes of the last few days due to protests by the opposition.
Congress supported the bill, while the Trinamool Congress, Janata Dal (United), Bahujan Samaj Party and Samajwadi Party among others staged a walkout. The CPI-M and CPI voted against the bill, making the point that they were opposed to the legislation on ideological grounds. Before becoming law, the bill needs the president’s assent and has to be notified.
The government’s attempt to pass the bill in the winter session of parliament had been thwarted in the Rajya Sabha as the opposition did not support the legislation despite it being referred to a select committee.
Higher foreign investment in insurance has been a key demand of western leaders and global insurance firms. It’s seen as opening up a huge market in which more than 90% of the population lacks coverage. Most joint ventures have been struggling for capital to expand the business and will benefit from the move.
“The industry at this stage does need long-term capital for growth and expansion which FDI can bring in,“ said Tarun Chugh, managing director and CEO, PNB MetLife. “FDI not only brings in capital and foreign exchange immediately into the economy but also enables companies to invest further in managerial ability , technical knowledge, administrative organisation, and innovations in products & production techniques.“
It will also intensify competition in a market dominated by the state run Life Insurance Corp. of India, which has a three-fourths share even a decade after private companies were allowed to enter.
Although private insurers such as ICICI Prudential, Max India, and HDFC Life have established their presence, many such as Aviva, Future Genarali, and India First are struggling with less than 3% of market share, which analysts say is unviable. Fresh capital investments in smaller companies would help them hire more agents to sell products, which could help them revive.
“Flexibility in terms of commission will enable the distribution channel and give opportunities to newer channels like web aggregators and insurance marketing firms,“ said Sandeep Bakhshi, managing director and CEO of ICICI Prudential Life. “This was an old Act. Technology and distribution characteristics have changed since then and it was the right time to move to the new Act.“
Source: The Economic Times
Date: March 13, 2015