InvestorQ : Why has the government passed a separate regulation to allow FDI in LIC? Was FDI in insurance already available.
manisha Kolvenkar made post

Why has the government passed a separate regulation to allow FDI in LIC? Was FDI in insurance already available.

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Crowny Pinto answered.
2 months ago
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That is more for the purpose of clarity. While you are right that the current FDI policy in insurance already allows 100% FDI through the automatic route. However, this is only for companies under the Companies Act and LIC is a Corporation under special act of Parliament. Now government has clarified that foreign investment up to 20% will be allowed in in LIC and other similar body corporates with a like ownership structure.

This approval that has come from the Cabinet is not only applicable for FDI flows up to 20% in case of LIC but will be applicable to all the bodies corporate formed under similar special acts of Parliament as corporations. FDI was never barred in the case of LIC, but there was lack of clarity on the legal front. Now this clarification on FDI from the government puts to rest any such doubts and offers full clarity for foreign direct investment in such businesses.

The problem is that the LIC does not fall into any of the categories that are subjected to the extant FDI rules. Hence one can logically infer that no limit is prescribed for FDI in LIC under the LIC Act. It was therefore necessary to provide greater clarity on this matter to avoid any tax related issues or legal objections later on. To expedite the capital raising process, such FDI will happen under the automatic route, exactly like the other insurance companies.

There are reasons why the government is so keen to push the FDI story through. In last few years, India has been a virtual magnet when it comes to attracting foreign direct investments or FDI. The FDI inflows into India increased from $45.15 billion in FY2014-2015 to a robust level of $81.97 billion in FY2020-21. This is despite lag effect of the pandemic. FDI flows in FY21 were 10% above FY20 levels. Of course, the timing of the LIC issue is still a question mark, but the good news is that it is all set to attract FDI players.

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