Rajya Sabha on Thursday approved a bill to raise the foreign investment limit in the insurance sector to 74 per cent with Finance Minister Nirmala Sitharaman saying while control will go to foreign companies, the majority of directors and key management persons will be resident Indians who will be covered by law of the land.
"The laws of the land are fairly mature. They can control every operation which happens in this country. (No one can) take it (money) away and make us sit and watch," she said replying to a debate on the bill.
Giving out reasons for the decision to raise the foreign direct investment (FDI) limit, she said insurance companies are facing liquidity pressure and the higher limit would help meet the growing capital requirement.
On change of definition of 'control' of the insurance company with the hike in FDI limit, she said control means right to appoint a majority of directors, control the management of policy decisions including by virtue of their shareholding or management right or shareholder agreements or voting agreements.
By raising the FDI limit to 74 per cent, the current provision of control being vested with Indian companies had to be dropped.
But conditions have been attached to the control.
"Majority of directors in the board and key management persons to be resident Indians which means every law of the land will be applicable on them. And a specific percentage of the profits is to be retained as general reserves. It cannot be (taken away)," she said.
These conditions, she said, should remove doubts that higher FDI would bring colonialism.
Sitharaman said India received FDI worth Rs 26,000 crore in the insurance sector after 2015 when the foreign investment limit was raised to 49 per cent from 24 per cent.
The bill to hike the FDI limit in insurance, she said, was been brought after extensive consultations by sector regulator IRDAI.
The bill, which will now go to the Lok Sabha for approval, was passed by voice vote after opposition Congress and other parties staged a walkout in protest of the bill.
They had forced four brief adjournments of the proceedings when the bill was taken up for discussion over their demand for it being referred to a Select Committee of the House for greater scrutiny.
The bill seeks to increase the FDI limit in the insurance sector to 74 per cent. The announcement regarding it was made by the minister while presenting the Union Budget on February 1.
Currently, the permissible FDI limit in life and general insurance stands at 49 per cent, with ownership and management control with Indians.
Sitharaman said that more inflow of foreign investment and increased competition, ultimately benefit consumers who will get better deals, better negotiated premiums, and better packages.
"Competition strictly is for betterment," she said.
Terming insurance as a highly regulated sector, she said that FDI limit is not a compulsion on companies, and that every promoter will take decisions as to what extent they want funding, within the FDI framework.
"This enabling amendment is only to allow them to receive some money but not exceed 74 per cent," she said.
Benefits of opening up and bold reforms need be furthered, she said.
The minister stressed that amendments have been brought after extensive consultations by sector regulator IRDAI.
Stating that concerns had been raised about what would happen to public sector insurers, she said that in the insurance space, there are six public sector companies in all categories put together, whereas the same number for private sector was 50.
On employment related concerns that had been flagged, she said in public sector life and general category taken together employs 1,65,000 people.
The private sector - life and general category combined - has 2,67,000 employees who "are also our people", she said.
"We will have to be worried about them, as much as those in public sector. They are also working for their livelihoods. So let us not forget that," Sitharaman said
As per the bill, 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 a general reserve.
Increase in FDI is aimed at improving life insurance penetration in the country. Life insurance premium as a percentage of GDP is 3.6 per cent in the country, way below the global average of 7.13 per cent, and in case of general insurance, it is even worse at 0.94 per cent of GDP, as against the world average of 2.88 per cent.
Responding to the issues on fugitive businessmen raised by members, Sitharaman said that Vijay Mallya, Nirav Modi and Mehul Choksi are "coming back" to India" to face the law.
"Vijay Mallya, Nirav Modi, Mehul Choksi all of them are coming back to face the law of this land...One after other everybody is coming back to this country to face the law of this country," she said.
Nirav Modi and Mehul Choksi are accused in a scam involving fake guarantees in the name of state-run PNB to secure overseas loans. Both fled India in 2018, before the CBI began probe.