Reforms in India: Government Clears FDI in Insurance and Pension

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Oct. 9 – The Government of India on October 4, 2012 approved moving the FDI cap in insurance to 49 percent while also approving the introduction of certain official amendments to the Pension Fund Regulatory and Development Authority Bill (2011). The decision has been taken by the Cabinet headed by the Prime Minister of India.

Now, with the Cabinet approving the scheme, the Insurance Laws (Amendment) Bill is likely to be taken up by Parliament in the forthcoming Winter Session. The Cabinet has fixed a limit of 49 percent of FDI in the insurance sector, increasing it from 26 percent. The insurance industry in India has welcomed the decision and the Insurance Regulatory Development Authority (IRDA) also favored the FDI cap increase to 49 percent by the government. In India, the insurance sector opened for the private sector in the year 2000 after the enactment of the Insurance Regulatory and Development Authority Act (1999).

The Indian Government also opened up the pension sector to overseas investment, allowing FDI of up to 49 percent. The new actions are likely to bring more international companies of the insurance domain into the sector. Though, the quantity will likely not be as large as in the case of insurance sector. The move comes at a time when a greater part of life insurers are suffering from expense overrun and are in terrible need of fresh capital infusions. The Bill provides the Pension Fund Regulatory and Development Authority (PFRDA) to supervise multiple pension funds in the country. It means that the authority will get constitutional backing, which would allow it to watch the players more efficiently.

Now, the next step is approval in the Parliament. The upper and lower houses of the Parliament must approve the Bill cleared by the Cabinet.

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