Analysts said liberalising foreign investment will particularly help the life insurance business in India, where the capital requirement is higher compared with the general insurance sector.
The statement came along with an indication from Finance Minister P Chidambaram that the government will now reach out to political parties like the Bharatiya Janata Party, which had voted agaist the government confidence motion, for faster economic reforms and passage of Bills.
At least three Bills for opening up the pension, banking and insurance sectors have been pending for lack of support from the Left. The finance ministry is ready with a Bill to amend the law, which among other things will raise the foreign investment ceiling from 26 per cent to 49 per cent.
"Raising the foreign investment limit will allow higher capital inflows for the industry. We may not feel the need for higher capital right now, but in the long term, as the industry grows in size, foreign capital will become indispensable. Raising foreign cap will give more access to the international markets," ICICI Prudential Life Insurance Managing Director and CEO Shikha Sharma said.
SBI Life Managing Director and CEO U S Roy added that the move will help companies deploy capital across various segments of the business. "It is a signal that we are open to developing the Indian insurance industry. But the government will need to make a lot of changes on the regulation front as well to increase the limit to 49 per cent."
With a rise in the ceiling, the government and the insurance regulator will have to rework the guidelines, which require the Indian partner to divest stake to the public after 10 years of incorporation, an executive said.
At a time when Indian companies have mega expansion plans, more capital from the foreign partner will help them tide over whatever liquidity issues that they may be facing, though almost all the Indian promoters are large conglomerates with insurance being a smaller part of the business. The regulations mandate a solvency margin of 150 per cent.
