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Budget 2021: Increase in FDI Will Be A Revolutionary Move For The Insurance Sector

Budget 2021: Increase in FDI Will Be A Revolutionary Move For The Insurance Sector

The Union Finance Minister, Nirmala Sitharaman proposed increasing the Foreign Direct Investment limit in insurance from 49% to 74% on Monday. "I propose to amend the Insurance Act, 1938, to increase the permissible FDI limit from 49 percent to 74 percent in insurance companies and allow foreign ownership and control with safeguards," she said.

This has been a long-standing demand by the industry. The foreign firms that set up services in India will need to have resident Indians on their boards and in key management positions. A specified percentage of profits will also need to be retained by these firms as a general reserve.

The move will be revolutionary as it opens up the insurance sector in India and will help in increasing the insurance penetration. Here’s how it will benefit the industry:

  • The move will help in capital infusion in private companies. This will further help in the improvement of technologies and the introduction of new products, digital and hassle-free processes in the market which is consumer-friendly.
  • There is a strong relationship between foreign investment and economic growth. Larger inflows of investment are needed for India to achieve higher economic growth.
  • With increased money flow, insurance companies will create more jobs for people to reach the uninsured population of the country, thus it will help in generating employment as well as increasing the penetration of insurance in India.
  • It will also provide room for more players in the market and increase competition. This will pave way for more innovation in products.
  • With the increase in competition, there will be more products that are affordable for the consumers. Thus, it will help in reaching out to consumers who couldn’t afford insurance. ((newsletter))

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