FDI limit in insurance sector 100%

Why in the news?

• Finance Minister Nirmala Sitharaman in her budget speech 2025-26 proposed to increase the limit of foreign direct investment (FDI) in the insurance sector from the current 74% to 100% under financial sector reforms.
  • This means that now foreign companies can buy up to 100% stake in Indian insurance companies.
• For this, the draft bill will soon be sent to the Union Cabinet for approval.
• This increased limit will be available to those companies which invest their entire premium in India.
• The existing barriers and conditions related to FDI will be reviewed and simplified.
• Its objective:
  • To attract foreign investment
  • To increase market access
  • To adopt global best practices

Amendments required in Acts to increase FDI limit:

• Insurance Act 1938
• Life Insurance Corporation Act 1956
• Insurance Regulatory and Development Authority Act 1999

Major changes in FDI limit in insurance sector so far:

• In 2015, the government had increased the FDI limit in the insurance sector from 26% to 49%.
• In 2021, this limit was increased from 49% to 74%.

Foreign Direct Investment (FDI):

• It is the flow of capital from one country to another.
• In this, investors invest in companies or projects located outside their country.

Benefits of increasing the limit of foreign investment in the insurance sector:

• Increasing the FDI limit makes more capital available to insurance companies.
  • They can use it to expand their business, adopt new technologies, etc.
• The entry of foreign companies increases competition in the market.
  • This provides better services and products at lower prices to the customers.
• Foreign companies bring with them new technologies and better business strategies.
• Foreign investment in the insurance sector also helps in promoting the economic development of the country.