Union Finance Ministry approved 49 Percent FDI in Insurance and Pension Sector

In a move aimed at encouraging investment sentiment in the country, the Union Finance Ministry on 22 August 2012 approved 49 percent foreign direct investment in insurance and pension sector. Earlier the permitted level of FDI in the insurance and pension sector was 26 percent.

The proposal for 49 percent FDI in insurance and pension sector was made during Pranab Mukherjee’s tenure at the finance minister office. However, the decision on the same was delayed because of resistance from the cronies.

With the approval of Union Finance Ministry, the bill will now be discussed in the cabinet and will require to be approved by the parliament. The chances of the bill getting through in the monsoon session of the parliament are very low as opposition parties have been consistently stalling the house on the issue of coal scam. The monsoon session is set to end on 27 August 2012.

As per the Insurance Regulatory and Development Authority (IRDA) estimates, over the next five years, the insurance sector requires a capital infusion of more than 12 billion dollar. The Union Government has been trying hard to introduce the major reforms to revive the ailing economy. The measures such as FDI in multi -brand retail and civil avaiation, implementation of Goods and Services Tax (GST) have , however, faced fierce opposition from different political parties.

Indian economy is rapidly moving towards the grim economic situation similar faced during the recession. The economy needs some big ticket reforms to reverse the pessimistic economic environment. India's GDP growth fell to 6.5 percent during 2011-12 but the fourth quarter growth rate dropped to 5.3 percent, the slowest in past nine years. Business confidence among the investors and business leaders has touched the historic low as industrial output and trade figures are constantly going down.

The tight monetary policy measures adopted by the central bank to check inflation has actually aggravated the situation as high interest rates are hugely impacting the overall growth scenario. Indian industries have been reiterating that there is an urgent need to create conditions for revival of private investment.

The FDI in insurance might prove to be a start of the long pending reform but the Union Finance Minister P Chidambaram will have to work hard on political front to make it possible. Earlier the government had to defer the decision on the bill as it faced opposition from its allies such as Trinammol Congress.