FDI (Foreign Direct Investment) in the Indian Insurance Sector

FDI or Foreign Direct Investment in the insurance sector has been a political hot topic for almost six years now. So, what does FDI in insurance mean? To answer this, we first need to understand what FDI is and what happens when a country like ours accepts direct investments from another country.

FDI, simply put, is a direct investment, by an individual or a company of another country, into business or production services of a country. This could be done in two ways viz. by either expanding the business in or by possibly buying a company in India.

Let's examine the condition of India's insurance sector. The Indian insurance sector has been in a state of constant unrest. It is facing a lot of problems due to reasons like rising costs, political reforms being stopped, etc. Thus, even though the insurance industry in India grew significantly in past decade, the Indian market still remains largely untapped. The Indian insurance industry needs to revived, and hence, the Indian government proposed to hike the foreign holding in joint insurance ventures from the 26% to 49%.

So, what are the benefits of increasing FDI in the insurance sector? There are plenty, but let’s take a look the four important ones:

1.  More money coming in will help new insurance companies to enter the market
2. Companies will be able to offer better and wide range of insurance products at extremely competitive prices
3. Companies will get product and technological expertise from their foreign counterparts
4. Companies will have to improve their infrastructure and better their operations to tap into the uninsured markets, which will lead to an increase in jobs

The good news is that, after going back and forth for almost six year, the government has finally given a go ahead to increase the FDI limit. With this happening, the insurance sector is looking at a capital inflow of nearly Rs. 60, 000 Crore in 2015.