The existing FDI limit is 49 per cent.
Last year, the government had allowed 100 per cent FDI in insurance intermediaries, including insurance brokers, consultants, third party administrators and surveyors.
"For annual premium above ₹2.5 lakh for ULIPs, the maturity benefit will now be taxed as capital gains The Budget endeavours to selectively bring in taxation parity between life insurance companies and mutual funds", said Rushabh Gandhi, Deputy CEO, IndiaFirst Life Insurance Company.
Recently, the government relaxed foreign investment norms in sectors such as brand retail trading, coal mining and contract manufacturing.
In February past year, the government had amended the FDI policy to allow 100 percent foreign investment in insurance intermediaries such as insurance agents, web aggregators of insurance policies and brokers.
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"The imperativeness of the Life Insurance sector in the economy has gained paramount importance in the aftermath of Covid and has reinforced the need for wider penetration of insurance in terms of protection and building a safety net". There could also be an increase in merger and acquisition activity in the sector according to industry observers. The industry is of the views that increase of FDI limit in insurance is a favourable move considering the skewed nature of insurance penetration in India.
All in all, this budget is a calibrated approach to boost inclusive growth and development, triggering employment and prosperity, leading the country one step closer towards fulfilling its aspiration of "Atmanirbhar Bharat". The policy would give a clear roadmap for disinvestment in strategic and non-strategic sectors. "What remains to be seen is the timely implementation of these measures", said Bhargav Dasgupta, MD and CEO of ICICI Lombard.
Insurers welcomed the move as insurance is a capital intensive business, but are awaiting more details. General Insurance Corp of India surged more than 5 per cent.
Moody's Investors Service senior analyst (financial institutions) Mohammed Ali Londe said the proposal to increase the FDI limit for insurers to 74 per cent is credit positive for insurers. "In addition, insurers would benefit from the sharing of risk management best practices, possibly leading to a lowering of exposure to high-risk assets and adoption of risk-based capital management", he said.
Shares of insurance companies jumped following the finance minister's announcement.