Union Budget 2021: FDI limit hiked from 49% to 74%

Nirmala Sitharaman proposed to increase the FDI limit from 49% to 74% which was fixed at 26% in 2000 when the insurance sector was privatised.

Finance Minister Nirmala Sitharaman proposed to increase the Foreign Direct Investment(FDI) limit from 49 percent to 74 percent in the insurance sector on Monday. This will be done once the Insurance Laws (Amendment) Act 2015 and Insurance Act 1938 are amended in the Parliament. The Finance Minister said that the hike in the FDI limit in insurance companies will allow "foreign ownership and control with safeguards."

"Under the new structure, the majority of directors on the board and key management persons would be resident Indians with at least 50 per cent of directors being independent directors and specified percentage of profits being retained as general reserve," Ms Sitharaman said. Earlier in 2000 when the insurance sector was privatised, the FDI limit was fixed at 26 percent which was increased to 49 percent in 2015.

In 2015, the 'Indian Management Control' clause was inserted into the Act which said that in Indian insurance companies, all major strategies and decisions were to be taken only if the majority of the Indian shareholders approved of it. Insurance companies hailed the proposal and shares of several companies increased after the Budget 2021 was presented on Monday. Global investors wanted a hike in the FDI limit since the government had amended the policy that allowed 100 percent foreign investment in insurance intermediaries.