Page 1 of 7
Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 03 Issue 13
December 2017
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 65
Foreign Direct Investment in Indian
Insurance Sector Emergence and
Concern
Thadoor phani Priyanka
MBA*
Abstract:
One of the most striking developments
during the last two decades is the
spectacular growth of FDI in the global
economy landscape. This unprecedented
growth of FDI in 1990 around the world
make FDI an important and vital component
of development strategy in both developed
and developing nations and policies are
design in order to stimulate inward flows.
FDI provides a win-win situation to the host
and the home countries. Both countries are
directly interested in inviting FDI, because
they benefit a lot from such type of
investment. Generally speaking FDI refers
to capital inflows from abroad that invest in
the production capacity of the economy and
are usually preferred over other form of
external finance because they are non-debt
creating non-volatile and their returns
depend on the performance of the projects
financed by the investors. FDI inflow helps
the developing countries to developed
transparent, broad and effective policy
environment for investment issues as well
as, builds human and institutional capacities
to execute the same. The insurance sector is
of considerable importance to every
developing economy; in includes the saving
habit, which in turn generates long-term
investible funds for infrastructure building.
This Paper’s objectives are to investigate
the Indian Insurance sector, to know
benefits of increased foreign direct
investment limit in insurance sector, to know
the Government policy regarding insurance
sector in India, to know Issues in FDI in
Insurance Sector.
Keywords: FDI, Insurance Sector in India,
Inflow, Outflow, Investment limits.
I. Introduction:
Even after the liberalization of the insurance
sector, the public sector insurance
companies have continued to dominate the
insurance market, enjoying over 90 per cent
of the market share. FDI is the process
whereby residents of one country acquire
ownership of assets for the purpose of
controlling the production, distribution and
activities of firm in another country. A
major role played by the insurance sector is
to mobilize national savings and channelize
them into investment in different sectors of
the economy. FDI in insurance would
increase the penetration of insurance in
India; FDI can meet India’s long-term
capital requirements to fund the building of
Page 2 of 7
Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 03 Issue 13
December 2017
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 66
infrastructures. Insurance sector has the
capability of raising long-term capital from
the masses, as it is the only avenue where
people put in money for as long as 30 years
even more. An increase in FDI in insurance
would indirectly be a boon for the Indian
economy. The insurance sector has also
been fast developing with substantial
revenue growth in the non-life insurance
market. Over the years, FDI inflow in the
country is increasing. However, India has
tremendous potential for absorbing greater
flow of FDI in the coming years. The role of
foreign direct investment in the present
world is noteworthy. It acts as the lifeblood
in the growth of the developing nations. The
wave of liberalization and globalization
sweepings across insurance regulatory and
development authority (IRDA) is in favour
of an increase in foreign equity capital in the
insurance joint ventures. The insurance
markets in the world.
II.Overview of Insurance Sector in India:
IIA.History of Insurance:
A contract of insurance may be defined as a
contract whereby, one person, called the
‘insurer’, undertakes, in return for the agreed
consideration, called the ‘premium’ to pay
to another person, called ‘assured’, a sum of
money or its equivalent on the happening of
a specified event. The aim of all insurance is
to make provisions against dangers which
beset human life and dealings. Those who
seek it endeavor to avert disasters from
themselves by shifting possible losses on the
shoulders of others who are willing for
pecuniary consideration, to take risk thereof,
and in the case of life assurance,
theyendeavor to assure to those dependent
on them a certain provision in case of their
death, or to provide a fund out of which their
creditors can be satisfied. In India, insurance
has a deep-rooted history. It funds mention
in the writings of Manu (manusmrithi),
Yagnavalkya(Dharmasastra) and Kautilya
(Arthasastra). The writing talks in terms of
pooling of resources that could be re- distributed in times of calamities such as
fire,floods, epidemics and famine. This was
probably a precursor to modern day
insurance. Ancient Indian history has
preserved the earliest traces of insurance in
the form of marine trade loans and carriers’
contracts. Insurance in India has evolved
over tome heavily drawing from other
countries, England in particular.
IIB.Government Policy regarding
Insurance Sector in India:
While presentation the Union Budget for
2013-14, the Finance Minister announce as
follows: “ In order to remove the ambiguity
that prevails on what is Foreign Direct
Investment and what is Foreign Institutional
Investment, I propose to follow the
international practice and lay down a broad
principle that where an investor has a stake
of 10% or less in a company, it will be
treated as FDI. A committee will be
constituted a to examine the application of
the principle and to work out the details
expeditiously”
Pursuant to the announcement, a committee
was constituted by Government of India
under the chairmanship of Dr. Arvind
Page 3 of 7
Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 03 Issue 13
December 2017
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 67
Mayaram, Secretary DEA, Ministry of
finance and recommended that- 1. Foreign investment of 10% or more
through eligible instruments made in an
Indian listed company would be treated as
FDI. All existing foreign investments below
threshold limit made under the FDI route
shall however, continue to be treated as FDI.
2. An investor may be allowed to invest
below the 10% threshold and this can be
treated as FDI subject to condition that the
FDI stake is raised to 10% or beyond within
one year from the date of the first purchase.
The obligation to do so will fall on the
company. If the stake is not raised to 10% or
above, then the investment shall be treated
as portfolio investment.
3. In case an existing FDI falls to a level
below 10%, it can continue to be treated as
FDI without an obligation to restore it to
10% or more, as the original investment was
an FDI.
4. In a particular company, an investor can
hold the investments either under the FDI
route or under the FII route, but not both.
Insurance being integral part of the financial
sector plays a significant role in India’s
economy. Apart from protecting against
mortality, property and casualty risks and
providing a safety net for individuals and
enterprises in urban and rural areas, the
insurance sector encourages saving and
provides long-term funds for infrastructure
development and other long gestation
projects of the nation. The development of
the insurance sector in India is necessary to
support its continued economic
transformation.
The IRDA opened up the market in August
2000 with the invitation for application for
registrations. Foreign companies were
allowed ownership of up to 26%. The
Authority has the power to frame regulation
under section 114-A of the Insurance Act,
1938 and has from 2000 onwards framed
various regulations protection of
policyholders interests. Today there are 28
general insurance companies (Non-life)
including the Export Credit Guarantee
Corporation (ECGC) and Agriculture
Insurance Corporation of India, 24 life
insurance companies that have set up
operations in the life segment post opening
up of the sector 20 are in joint venture with
foreign partners. Of the twenty two private
insurers who have commenced operations in
the non-life segments, 18 are in
collaboration with foreign partners.
Benefits of Increases in Foreign Direct
Investment Limit in Insurance Sector:
The cabinet committee on economic affairs
headed by Prime Minister Narendra Modi
has approved the limit of foreign direct
investment in insurance sector to 49 percent
from the existing 26 percent. The cabinet
has cleared the FDI limit in insurance
companies through FIPB route which
necessitates the management control with
the Indian promoters. This was a long due
reform which the Modi government has
undertaken and is surely bond to benefit the
insurance sector.
Let’s look at the six key benefits of
increased foreign direct investment limit in
insurance sector:-
