Insurance regulator, the Insurance Regulatory and Development Authority, on Monday pitched for a hike in foreign direct investment cap from 26 to 49 per cent and amendments in legislations to enable greater flexibility in investment, as a part of the efforts to sustain high growth in insurance sector.
"It (FDI hike) is a matter of policy. Finance Minister P Chidambaram has already announced it in the Budget. We support it," IRDA Chairman, C S Rao, said.
Although Chidambaram had proposed hiking FDI limits from 26 to 49 per cent in insurance, 49 to 74 per cent in telecom and 40 to 49 per cent in civil aviation, it was strongly opposed by the Left parties.
The hike in FDI limit is necessary for foreign players to infuse more capital in their Indian venture and sustain high growth in insurance.
Rao said that limited reach, inadequate number of products and service quality of public sector units before 2000 prompted the government to bring in reform in insurance. "It was also felt that rapid economic growth witnessed in the 1990s cannot be sustained without a thriving insurance sector," he said.
After opening up the sector with provisions for 'limited foreign equity exposure', Rao said the total premium of insurers surged by 83 per cent to Rs 82,415 crore (Rs 66,288 crore in life and Rs 16,127 crore in non-life) in 2003-04 from Rs 44,985 crore in 2000-01.
Comparing this with three years prior to the opening up of the sector, Rao said insurance premium of PSUs grew by 66 per cent to Rs 44,985 crore in 2000-02 from Rs 27,089 crore in 1997-98.