The decision taken on July 24 is expected to bring in as much as 25,000 crore (over 4 billion USD) foreign funds in the sector. It has also raised expectations that sectors like defence and railways will see similar relaxation of FDI norms.
The FDI cap hike in insurance to 49 per cent comes with a rider that ensures that management control remains in the hands of Indian promoters, while also improving the overall climate for investments from overseas.
The insurance sector, which was opened up for the private sector in 2000, was starving for investments. In his Budget 2014-15 speech, Finance Minister Arun Jaitley had expressed the need to increase the composite cap in the sector to 49 per cent, with full Indian management and control, through the FIPB route.
The insurance industry had been demanding the FDI limit be raised so as to attract adequate funds for the expansion of the sector. Industry leader believe that this move will provide better insurance coverage and enhance the flow of long term resources for financing infrastructure.
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