Union Budget 2014: FDI In Insurance Likely To Fetch $20 Billion

Liberalising foreign direct investment (FDI) in insurance is likely to fetch about $20 billion over the next three to five years. Insurers also expect to gain from the increase in tax exemption under section 80C of the Income Tax Act to Rs 1.5 lakh and service tax relief for micro-insurance schemes.

An increase in FDI in insurance sector would automatically raise the cap for pension firms and insurance intermediaries. "Until now all investments in the insurance sector were under the automatic route as the limit was specified by law and licences were granted by the regulator," said Deepak Mittal, managing director and chief executive officer, Edelweiss Tokio Marine Life Insurance.

"The insurance sector is investment starved. Several segments of the sector need an expansion. The composite cap in the insurance sector is proposed to be increased up to 49% from the current level of 26%, with full Indian management and control, through the FIPB route," said Finance Minister Arun Jaitley in his budget speech. "I am very glad that the issue of non-voting rights has been put to rest as the non-voting stake would have resulted in a much lower valuation," said Ashvin Parekh, managing partner, Ashvin Parekh Advisory.

He added that in most life insurance joint ventures, the agreement envisages stake transfer to the foreign partner at fair market value. “At fair market value, 23% stake of the all the companies in the insurance sector put together would be around Rs 1.1 to Rs 1.2 lakh crore," said Parekh.