Bloomberg News

India Panel Rejects Plan to Raise Foreign Cap in Insurance

December 13, 2011

(Adds India’s insurance market size in first paragraph.)

Dec. 13 (Bloomberg) -- A panel of Indian lawmakers rejected a proposal to raise the cap on foreign investment in insurers, likely curbing plans by Aviva Plc and Allianz SE to grow in the nation’s $41 billion insurance market.

“In the present global economic scenario, any further hike in foreign direct investment at this juncture may not be in the interest of India’s insurance industry, whereby the common man too would not stand to gain, particularly as a means of social security,” according to a report submitted today by the Standing Committee of Finance in parliament.

Prime Minister Manmohan Singh’s government had proposed increasing the limit to 49 percent from 26 percent by introducing the Insurance Laws (Amendment) Bill in 2008. The legislation has been pending primarily because of opposition from communist parties.

Allianz, Aviva and ING Groep NV are among global insurers that will be able to invest in their Indian ventures if the limit is raised in an industry that the Life Insurance Council forecasts is expanding 34 percent annually.

The insurance industry, which is grappling with losses and higher costs, will be forced to find other fund-raising options if the recommendations of the panel are accepted. This proposal along with the decision last week to backtrack on plans to let overseas retailers expand in India may undermine efforts to revive growth and curb inflation, while deepening a yearlong paralysis in government.

AIG, New York Life

India’s $1.7 trillion economy expanded last quarter at the slowest pace in almost two years after the central bank raised interest rates to slow inflation. The rupee has fallen almost 14 percent this year as investors sold emerging-market assets on concern Europe’s debt crisis will lead to a global recession.

New York-based American International Group Inc., New York Life Insurance Co. and London-based Prudential Plc are among overseas insurers that are restricted to 26 percent stakes in their ventures in India. The parliamentary panel’s recommendation is not binding on the government.

The committee suggested that the government should “seriously pursue the alternate route of tapping the market” for raising capital needed for the expansion of the insurance sector.

--With assistance from Abhijit Roy Chowdhury in New Delhi. Editor: Sam Nagarajan, Andreea Papuc

To contact the reporters on this story: Bibhudatta Pradhan in New Delhi at bpradhan@bloomberg.net; Pooja Thakur in Mumbai at pthakur@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net


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