New Delhi, July 24
In line with the Budget, the Union Cabinet today liberalised foreign investments in insurance by hiking the FDI cap from 26 to 49 per cent, a move that will cheer foreign investors and facilitate funds’ flow.

To protect investors, the Cabinet also cleared the SEBI Bill, which empowers the Securities and Exchange Board of India to initiate action against ponzi schemes and investment frauds.

In his Budget speech, Finance Minister Arun Jaitley had announced a hike in the insurance cap on the grounds that the sector was investment starved and several segments of the insurance sector needed expansion.

The composite cap in the insurance sector has been increased up to 49 per cent from the current 26 per cent with full Indian management and control through the FIPB route. It will boost the pension sector also as the FDI cap in pension has been linked to insurance.

The proposal for FDI cap hike in insurance was pending since 2008. This is the first big bang reform of the Narendra Modi government, which has also announced opening up of FDI in defence, railways and real estate.

The Insurance Laws (Amendment) Bill will now be taken up by Parliament. Fuelled by the government move on opening up the insurance sector, the Sensex today rose by 125 points to log a new closing peak of 26,271 points in the eighth consecutive session of gains.

Industry said the easing of norms will drive capital and promote savings. Amitabh Chaudhry, Chairman, FICCI’s Insurance and Pensions Committee and Managing Director & CEO, HDFC Life Insurance, said the proposed FDI cap would hopefully drive capital infusion into the insurance sector and revive growth.

FICCI is certain that many foreign players will enter both the insurance and pension sectors at a time when the country is in need of foreign
investments as the FDI limit in pension is tied to the FDI limit in insurance, he said.

Rajesh Sud, CEO & MD, Max Life Insurance, said once approved by Parliament, the move should bring much-needed long-term capital for the sector. It will also bring in domain capital which is of critical importance in this phase of growth of life insurance industry.

Apart from infusing long-term capital, the opening up of the insurance and pension sectors will also boost savings and raise funds for infrastructure financing.

"There is a strong need to channelize the household savings from physical to financial assets and allow FDI in pension sector. The enhanced cap in insurance sector will strengthen the financial sector,” said Sharad Jaipuria, president, PHD Chamber of Commerce and Industry.