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Saturday 12 July 2014

Budget 2014: Finance Minister's cover drive may fetch India $20bn in FDI

Liberalization of foreign direct investment (FDI) in insurance could result in inflows of over $20 billion over the next three to five years. Insurers also expect to gain from the increase in tax breaks under section 80C of the Income Tax Act to Rs 1.5 lakh and service tax relief for microinsurance schemes.

An increase in insurance sector FDI would automatically raise the ceiling for pension firms and insurance intermediaries. But insurers are looking for more clarity. First, they want to ensure that the government has indeed buried its earlier plans to allow higher FDI through non-voting shares.

They also want to know whether the approval will be on a case-to-case basis and whether it will be through the Foreign Investment Promotion Board (FIPB). "Until now all investments in the insurance sector were under the automatic route as the limit was specified by law, and licences were granted by the regulator," said Deepak Mittal, MD & CEO, Edelweiss Tokio Life Insurance.

In his Budget speech, finance minister Arun Jaitley said, "The insurance sector is investment-starved. Several segments of the sector need an expansion. The composite cap in the insurance sector is proposed to be increased up to 49 per cent from the current level of 26 per cent, with full Indian management and control, through the FIPB route."

Ashvin Parekh, managing partner, Ashvin Parekh Advisory , said, "I am very glad that the issue of nonvoting rights has been put to rest as the non-voting stake would have resulted in a much lower valuation."

He added that in most life insurance joint ventures, the agreement envisages stake transfer to the foreign partner at fair market value. "At fair market value, 23 per cent stake of all the companies in the insurance sector put together would be Rs 1.1-1.2 lakh crore," said Parekh.

Sunil Sharma, chief actuary, Kotak Life, said, "Increasing FDI would lead a 25-30 new insurers entering the market."

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