India should consider incremental policy safeguards along with the proposed Foreign Direct Investment (FDI) hike implementation in the insurance sector, Chief Economic Advisor Anantha Nageswaran has suggested. 

This is required so that the increased FDI benefits are also available to both the consumer and the country, he said at a post budget webinar organised by Department of Financial Services (DFS) on Tuesday. 

Nageswaran’s remarks are significant as the DFS and other government departments are finalising the Insurance (Amendment) Bill 2025, which is likely to be introduced in the second leg of the Budget session commencing from March 10. 

Finance Minister Nirmala Sitharaman had in her recent Budget speech announced the decision to hike FDI limit in insurance sector to 100 per cent from current 74 per cent. However, this enhanced limit will only apply to companies that invest the entire premium within India. She had also announced that the current guardrails and conditionalities associated with foreign investment will be reviewed and simplified. 

Some of the new guardrails now being discussed among policy makers include allowing foreign nationals to occupy senior managerial positions, but with a rider that they must reside in India for better control and accountability. Another condition being contemplated is to stipulate a tenure for specified minimum investment coming through FDI route so that fly-by- night companies are discouraged, sources said. The government is also keen that FDI comes through known source of funds and identifiable promoter/brand, it is learnt. 

Since 2000, when insurance sector was opened up, the total FDI flows in this sector so far stood at ₹82,847 crore. India’s insurance penetration is just 3.7 per cent as against a global average of 7 per cent. 

India is looking to have a fully insured society by 2047 along with its Viksit Bharat (developed nation status) goal by that year when the country celebrates hundred years of independence. 

Allowing 100 per cent FDI in insurance sector is expected to unlock potential of this industry, surpass global growth trends. Besides improving insurance penetration nationwide, it is also expected to facilitate technological advancement. 

PARTIAL CREDIT ENHANCEMENT 

Meanwhile, Nageswaran also called for industry consultations before introduction of partial credit enhancement facility by NaBFID. 

Recent Budget had empowered National Bank for Financing Infrastructure and Development (NaBFID) to set up partial credit enhancement facility for corporate bonds for infrastructure. 

This was being introduced to bridge the infrastructure financing gap; ensure more players are able to access bond markets for long term financing.  

Partial Credit Enhancement is a financial mechanism where a third party, such as a government entity or a financial institution, provides a guarantee or support to improve the credit rating of a bond or loan. This makes it more attractive to investors by reducing the perceived risk.