Cabinet approves controversial insurance Bill allowing 100 pc FDI

The Union Cabinet on Friday approved a Bill to raise foreign direct investment (FDI) in the insurance sector to 100 per cent, according to sources, paving the way for one of the most sweeping reforms in the financial services landscape since the sector was opened up two decades ago. The Bill may be introduced in the ongoing winter session of Parliament, scheduled to end on 19 December.

A Lok Sabha bulletin confirmed that the Insurance Laws (Amendment) Bill, 2025 is among 13 legislations listed for the session. The Bill seeks to deepen insurance penetration, accelerate sectoral growth and improve ease of doing business — objectives finance minister Nirmala Sitharaman outlined earlier this year when she announced the proposal to lift the cap from the current 74 per cent.

The insurance industry has so far attracted Rs 82,000 crore in FDI, a figure the government believes will rise sharply if restrictions are removed entirely. The finance ministry’s draft proposes multiple changes to the Insurance Act, 1938, including reducing paid-up capital requirements and introducing a composite licence, which would allow insurers to offer life, general and health products under a single entity.

Amendments are also planned for the LIC Act, 1956, and the IRDA Act, 1999. For LIC, the proposals include giving its board greater autonomy in operational matters such as branch expansion and recruitment — part of a broader effort, officials say, to modernise the insurer’s governance framework.

The government argues that the reform will bolster policyholders’ interests, expand consumer choice, strengthen financial security and attract new players, thereby supporting growth and employment as India seeks “insurance for all” by 2047.

However, the move is expected to face significant resistance in Parliament and beyond, mirroring the contentious debates that accompanied previous FDI hikes in the sector. Opposition parties have historically criticised increases in foreign ownership caps as a threat to domestic control over a critical financial sector.

Parties including the Congress, CPI(M) and DMK have, in earlier rounds of reform, argued that excessive foreign ownership could compromise regulatory oversight, expose policyholders to the volatility of global capital, and weaken the public-sector footprint — concerns likely to resurface when the Bill is tabled.

Trade unions, particularly those representing insurance employees and public-sector staff, have repeatedly opposed liberalisation measures in the sector. They contend that allowing full foreign ownership risks shifting the industry’s focus from long-term social protection to short-term profit motives, and may accelerate consolidation at the cost of smaller domestic insurers. Industry associations have also warned of the possibility of “capital flight”, with profits repatriated abroad rather than reinvested domestically.

Some sector experts caution that while higher FDI may bring capital and technical expertise, the benefits may not be evenly distributed. They note that India’s insurance industry already struggles with low rural penetration, dependence on agency networks and uneven regulatory compliance — structural issues that foreign investment alone may not resolve.

Still, supporters of the reform argue that increased competition and capital depth will push insurers to innovate, improve product design and expand into underserved regions. They point out that several Asian economies — from South Korea to Singapore — allow 100 per cent foreign ownership in insurance without compromising regulatory integrity, provided oversight remains robust.

As the government prepares to shepherd the Bill through Parliament, the debate is expected to intensify between those who see full foreign ownership as a necessary step to strengthen India’s financial architecture, and those who view it as an erosion of sovereign control over a core social-protection sector.

With the Bill touching multiple cornerstone laws — the Insurance Act, the LIC Act and the IRDA Act — its passage would amount to a once-in-a-generation overhaul, reshaping how insurers operate, raise capital and serve India’s 1.4 billion consumers.

With PTI inputs