Govt document proposes 74% FDI in insurance

Sitharaman did not provide many details about the proposals, but there are plenty of clues about the directions the government may be heading in a government document, dated May 3, seen by Reuters. And they may be more ambitious than those made public on Friday.

 

New Delhi:

Even as Finance Minister Nirmala Sitharaman in her maiden Budget for 2019/20, on July 5, said the government to consider relax FDI rules in the aviation, media, animation and insurance sectors, and ease rules for single-brand retailers, a government document has proposed that overseas invetment in the domestic insurance sector should be allowed up to 74% with necessary government approvals, above the current 49% limit that is allowed without approval under a so-called automatic route.

 

“I propose to further consolidate the gains in order to make India a more attractive FDI destination,” Sitharaman said while presenting the Budger 2019-20..

 

Sitharaman did not provide many details about the proposals, but there are plenty of clues about the directions the government may be heading in a government document, dated May 3, seen by Reuters. And they may be more ambitious than those made public on Friday.


Sitharaman said the government would would hold discussions with stakeholders to consider further liberalizing foreign direct investment (FDI) rules in certain sectors, part of its efforts to make Asia’s third-largest economy a more attractive investment destination.


Sitharaman on Friday said the government would allow 100% FDI in insurance broking and ease local-sourcing regulations for the single-brand retail sector – both proposals that were listed in the government document seen by Reuters.


For the insurance sector, the government document proposed that investment of up to 74% should be allowed with necessary government approvals, above the current 49% limit that is allowed without approval under a so-called automatic route.

 

The proposals included the extension of FDI limits in some of the sectors, while easing rules for others. Told about the plans listed in the document, three senior Indian officials told Reuters last month the proposals had been in the works for some time.

 

The move would come as a boost to firms such as Allianz,  Italy’s Generali Group, France’s AXA and U.S. insurer MetLife Inc , which already operate joint ventures in India.

 

Explaining the rationale, the government document said the private banking sector was “financially more sensitive” but allowed up to 74% foreign investment, and so the limits for the insurance sector should be relaxed to provide parity.


Multi-brand retailers, who would not be covered, would include department store companies selling a wide range of goods.

 

In addition, the document also proposed considering that single-brand retailers be allowed to sell goods online without first opening physical stores, as the current policy mandates. That, if approved, would allow companies such as Apple Inc to sell its devices online without first opening shops.

 

“Online sales will lead to creation of jobs in logistics, digital payments, customer care, training, and product skilling,” said the document, calling the current requirement of first opening physical stores an “artificial restriction.”

 

That document outlined what it called the “justification” for easing FDI rules for seven sectors, including single-brand retail and insurance – which Sitharaman mentioned on Friday.

 

The document also laid out FDI proposals for digital media, contract manufacturing, coal mining, certain plantation crops and firms that store financial information for bankruptcy proceedings.

 

The government’s move to ease FDI rules is also seen aimed at assuaging concerns of foreign investors who have become wary of India’s investment climate of late, especially after new FDI rules for the e-commerce sector were seen as protectionist.


Broadening access to India’s economy for foreign investors could help Prime Minister Narendra Modi, who won a thumping election majority in May but is still battling a slowdown in economic growth and foreign inflows.

 

 


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