India’s right-wing Bharatiya Janata Party government, led by prime minister Narendra Modi, seems set to give a new lease on life to insurance sector reforms. Plans currently in the pipeline would allow foreign companies to hold up to 49% equity in life and non-life insurance companies in India.
The BJP clinched an understanding with the Congress Party, its main opposition, on December 6, paving the way for the Insurance Laws (Amendment) Bill 2008 to be passed in the Rajya Sabha, the upper house of the Indian parliament.
Under the proposed reforms, the cap for foreign direct investment in insurance companies would be raised from 26% to 49%. The Modi government requires the opposition’s support because it lacks the numbers to get the insurance reform bill passed in the upper house. In the Lok Sabha—the lower house—the government has a sufficient majority to get the legislation through.
“We will make all efforts to get the insurance reforms bill cleared in both houses of parliament as early as possible,” parliamentary affairs minister M. Venkaiah Naidu said at a news briefing in December.
The winter session of parliament ended December 23, but BJP-led ministers actively pursued smaller political parties to allow the Rajya Sabha to pass the insurance reforms. However, the upper house witnessed acrimonious debates related to religious conversions in its concluding days, with no legislative business transacted as a result.
The insurance reform bill, first set in motion in 2008 by then finance minister P. Chidambaram, has recently been reviewed by a 15-member multiparty select committee headed by BJP member Chandan Mitra. The committee, which submitted its report in early December, recommended a further opening of the industry to foreign investors.
Congress members on the panel put their stamp of approval on the proposal, with the report recommending a 49% composite cap on foreign investment, meaning the cap would include both foreign direct investment and foreign portfolio investments.
The Indian government seems to be working overtime to showcase its seriousness in pursuing reforms ahead of Barack Obama’s visit to New Delhi on January 26. Obama will be the first US president to be the chief guest at India’s Republic Day parade.
The government projects that India’s highly diversified insurance sector will gain up to $8 billion in additional foreign investment because of the reforms. Several large US and Japanese insurers already have stakes in the evolving sector.
Finance minister Arun Jaitley told the Lok Sabha in that the doors to the insurance sector need to be opened wider so that large investments could come in.
Abizer Diwanji, a partner and head of financial services at consulting firm EY India, said in a December 10 interview on Indian financial news TV channel ET Now that more insurance companies will set up shop in India once the foreign investment limit is raised to 49%. “We do expect some kind of rationalization,” he noted. “So what we know is that there are a few players who were standing there to come in once the 49% clarity comes in. There may be a couple of players who may be keen to come in.” He also said that some level of consolidation could follow.
India’s underserved insurance sector includes 52 companies, comprising 28 nonlife players and 24 life businesses. In a recent report, Boston Consulting Group and Google India valued the sector at $66.4 billion in 2013. The BCG-Google report projected that the Indian insurance business would be worth $350 billion to $400 billion within seven years.