Foreign Direct Investment – FDI or Foreign Direct Investment is investment policy which allows investors from foreign nations to invest in domestic companies and institutions functioning inside the nation. FDI is a boon for the sick or non performing institutions to boost their revenue and performance.
FDI has knocked in India possibly very earlier but with quite strict limitations and in very few sectors. Therefore allowed sectors were enjoying it but with limited resources but recently in 2012, Indian Government has passed the bill in parliament to allowed FDI with maximum limits in various sectors like Retails, construction, including built-up infrastructure and construction development projects comprising housing, commercial premises, hospitals, educational institutions and insurance.
Foreign Direct Investment in Insurance
Foreign Direct Investment in Insurance was already existed in India by the limit of 26% but with huge discussion and objections in Parliament, Indian Government has lifted the Foreign Direct Investment in Insurance sector from 26% to 49%. Initially Indian government was planning to allow 100% FDI in both insurance and retail sectors but due to huge objections by oppositions, this step was moved back and limit was cut to 49% in Insurance sector. There are about 23 general insurance companies and 23 life insurance companies functioning in India and with the Foreign Direct Investment move lot more foreign insurance companies which were waiting for long time to setup their business in India will be happy.
What will be the effect of FDI in Insurance?
Though there was a huge objection by opposition in parliament against FDi, it was a good move by Indian government to introduce Foreign Direct Investment in various sectors and most probably in Insurance as it will help insurance companies to enhance their quality and performance. As per IRDA (Insurance Regulatory and Development Authority), the performance of insurance sector fell drastically by 6.3% for the year 2011-12 and the major insurer in India Life Insurance Corporation of India which almost covers 70% of the market, has to face a decline of 6.5%. FDI in Insurance will act as a boon to these organizations with introduction of foreign technology and investments.
FDI and its Types
1. Horizontal − In case of horizontal FDI, the company does all the same activities abroad as at home. …
2. Vertical − In vertical assignments, different types of activities are carried out abroad. …
3. Conglomerate − In this type of investment, the investment is made to acquire an unrelated business abroad..