Source: FE
Subject: Economy
Context: The Union Cabinet has approved a proposal to raise the FDI limit in insurance companies from 74% to 100%, to be implemented through the Insurance Laws (Amendment) Bill, 2025.
About Cabinet Approve 100% FDI In Insurance:
What is FDI?
- Foreign Direct Investment (FDI) is when a non-resident investor acquires an equity stake (≥10%) in an Indian company, with a lasting interest and some degree of control/management influence.
How FDI works in India?
- Foreign investor brings capital into an Indian company through:
- Subscription to shares (MoA, preferential allotment, rights/bonus issue, private placement)
- Mergers, demergers, amalgamations
- Share purchase from existing residents
- Conversion of convertible instruments / notes, swap of instruments etc.
- FDI is regulated under FEMA, sectoral caps, pricing guidelines, entry routes and conditions laid down by the Government / RBI.
- In insurance, 100% FDI means a foreign insurer can now hold full ownership (subject to Indian regulatory conditions) in an Indian insurance company.
Two FDI Routes in India:
- Automatic Route
- No prior Government or RBI approval required.
- Investment must comply with sectoral caps, FEMA rules, SEBI/RBI norms etc.
- Investor only needs to report and file prescribed forms.
- Government Route
- Prior Government approval is mandatory.
- Application is made through the Foreign Investment Facilitation Portal (FIFP).
- Approval may carry specific conditions (lock-in, reporting, security conditions, etc.).
Prohibited Sectors under FDI:
FDI is not allowed in, among others:
- Lottery business, online lotteries
- Gambling and betting, including casinos
- Chit funds (except some NRI/OCI non-repatriation cases)
- Nidhi companies
- Trading in Transferable Development Rights (TDRs)
- Real estate business and construction of farmhouses
- Manufacturing of cigarettes, cigars, cigarillos of tobacco / substitutes
- Sectors not open to private investment (e.g. atomic energy, certain railway operations)
- Technology collaboration (brand/franchise/management) is also prohibited in lottery and gambling/betting.
Progressive FDI Liberalisation in Insurance:
- 2015 – FDI cap raised from 26% to 49%.
- 2021 – FDI cap raised from 49% to 74%, with safeguards on Indian management and control.
- 2025 (proposed) – FDI cap to be raised to 100%, subject to conditions in the Insurance Laws (Amendment) Bill, 2025 and changes in:
- LIC Act, 1956
- IRDA Act, 1999
- Insurance Act, 1938
