Fdi Norms, Foreign Participation in an Indian Insurance Company

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As per the current (Mar 06) FDI norms, foreign participation in an Indian insurance company is restricted to 26.0% of its equity / ordinary share capital. The Union Budget for fiscal 2005 had recommended that the ceiling on foreign holding be increased to 49.0%.

The government approved the much-awaited comprehensive Insurance Bill that seeks to raise foreign direct investment (FDI) cap in private sector to 49 per cent from 26 per cent.

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Insurance Market in India: Past-Present-Future

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FDI Cap 49% from 26%: Impact on Indian Insurance Industry

A higher foreign direct investment (FDI) will
unshackle the insurance industry and drive growth and long-term development enrich the business by bringing world-class business practices and processes expand distribution capabilities and deepen market penetration.

Over US$ 2 billion of foreign capital could flow into the country if the Government were to pass the Insurance Amendment Bill that raises the FDI limit.

Scene 1: Change in waive service tax on micro insurance products

The growth of the rural insurance industry necessitates a waiver of the service tax, which currently stands at 10.3 per cent, including education cess.

This tax is detrimental to the growth of the rural insurance industry and insensitive to the plight of rural populace which lacks quality healthcare and is vulnerable to numerous perils, including illness, accidental death and disability, loss of property due to theft or fire, agricultural losses, and disasters of both the natural and man-made varieties.

Rural insurance has an enormous potential for growth and a service tax waiver will make micro insurance products more affordable for the rural populace, and will drive pan-India penetration of this market.

Scene 2: Revision on Service tax on small transactions

There is an urgent need to increase the threshold for the levy of service tax on policies. The present notification exempts small...
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