According to Financial Services Secretary Vivek Joshi, the insurance sector in India has received a massive Rs 53,900 crore as Foreign Direct Investment (FDI) in the last 9 years (between December 2014 and January 2024). There are currently 70 insurance companies operating in the country.
Allowing Private and Foreign Players
The insurance sector was opened to the private sector in 2000 on the recommendation of the R.N. Malhotra committee, set up by the government in 1993 to reform the sector. Initially, foreign companies were allowed 26% ownership. This FDI limit was later increased to 49% in 2015 and then to 74% in 2021. In 2019, the government permitted 100% FDI in insurance intermediaries.
Increasing Penetration and Density
Joshi stated that the insurance penetration (ratio of premiums to GDP) in India has increased from 3.9% in 2013-14 to 4% in 2022-23. The insurance density (ratio of premiums to population) rose from USD 52 in 2013-14 to USD 92 in 2022-23. Higher penetration and density indicate the growth and spread of the insurance sector in the country.
What is Foreign Direct Investment
The terms ‘Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) have been defined in the Foreign Exchange Management Act (FEMA) 1999.
The FDI means investment made by a person resident outside India through capital instruments
- in an unlisted Indian company; or
(b) in ten per cent or more of the paid-up equity capital of a listed Indian company.
Foreign Portfolio Investment (FPI) is any investment made by a person resident outside India through capital instruments where such investment is less than ten per cent of the paid-up share capital of a listed Indian company.
Here, capital instruments mean shares (equity/preferential/warrant shares)and non-convertible debentures issued by an Indian company.
Sectors Barred from FDI
While most sectors are open for FDI, some sectors like lottery, gambling, chit funds, and atomic energy are barred from receiving foreign investment. The massive FDI inflow into the insurance sector highlights India’s attractiveness as an investment destination and the growth potential of this key segment of the financial services industry.