Insurance Bill: Government's first big reform push to save ailing sector

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The Parliament on Monday will discuss the Insurance Laws (Amendment) Bill, which was recently cleared by Union Cabinet with the condition that management control will remain in the hands of Indian promoters. The Bill has proposed provision of increasing FDI cap limit from existing 26 per cent to 49 per cent. Earlier, Government accepted the Opposition's demands that Bill be sent to the select committee of Rajya Sabha as large number of amendments have been made in the proposed legislation. Let's discuss the whole issue in detail.

Why is the Bill needed?

  • Higher FDI cap will benefit the insurance sector which needs high capital.
  • Most of the domestic insurance companies (24 life insurance companies and 27 general insurance companies) are not making any profits and running into losses.
  • Foreign investment will resuscitate these companies.
  • Rs 20,000 crore could pour into the market in near term and in the long run could go up to Rs 60,000 crore.
  • Higher FDI limit could help in deepening the insurance penetration in India.

The losers and gainers:

  • Life Insurance Corporation (LIC) which controls more than 65% of India's life insurance companies could lose if the foreign players infuse money and get aggressive in the Indian market.
  • Once this bill becomes an act, insurance companies like Reliance Capital, Max India, Religare Enterprises will be able to raise capital from their foreign partner to expand their business.
  • New players will also be encouraged to enter the industry, if the Bill comes.

Who all are opposing the Bill?

  • The All India Insurance Employees' Association has raised serious objections to the Bill.
  • They say, this is public money and with the Bill, the government will pass on Indian investors' money into the hands of foreigners which would be against national interests.
  • Trinamool and Left parties are also opposing it and are trying to come together with Congress to move a motion to send the bill for further scrutiny.

What will be its impact in India?

  • There could be the following benefits once this bill gets Parliament's nod.
  • The expansion of insurance sector would ensure creation of more jobs.
  • It would also mean more and more people, especially those employed in unorganised sectors would come under insurance cover.
  • Entrance of more players in the market would guarantee more competition which will ultimately result in reducing the amount of premium people have to pay.

While the Bill has been passed by the union cabinet, both the Congress and BJP are fighting over the point that who is to be credited for the Bill as the Bill was introduced by the erstwhile Government in 2008. But rather than fighting they should think in national interest and do the needful if it is going to be a help for the grappling economy.

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