Union Cabinet approves FDI of up to 20% in LIC of India under automatic route

“FDI up to 20% under the automatic route is allowed in LIC,” said a person cited above privy to the development. The reform in the FDI policy will facilitate foreign investment in LIC and such other bodies corporate, for which the government may have a requirement for disinvestment purposes. The FDI policy has been ‘further simplified and enhanced’, the person said. A spokesperson could not be immediately reached for comment. 

At present, the FDI policy did not prescribe any specific provision for foreign investment in LIC which is a statutory corporation established under LIC Act, 1956. The policy permits FDI in insurance companies and intermediaries or insurance intermediaries in the insurance sector. The FDI ceiling for public sector banks is 20% on government approval route.

Since LIC does not fall in any of these categories and no limit is prescribed for foreign investment in LIC under the LIC Act, the government has decided to allow foreign investment up to 20% for LIC and such other bodies corporate.

“In order to expedite the capital raising process, such FDI has been kept on the automatic route, as is in the case of rest of the insurance sector,” the person added.

The government is planning to take LIC to the markets next month by selling 5% of its holding in the largest insurer through an IPO, which is likely to generate huge interest among foreign investors. The change in the FDI policy for LIC will ensure that such investors do not face any hurdles while subscribing for the public offer.

The Cabinet also approved other changes to the FDI policy aimed at improving ease of doing business and in turn higher investments into the country and job creation.

“With an intent to improve and enhance the overall FDI policy, certain changes and alignments under various provisions of the FDI Policy, are also carried out in order to provide greater clarity and updated, consistent and easily comprehensible FDI framework,” the person added.

The reform will also facilitate ease of doing business and lead to greater FDI inflows, and at the same time, ensure alignment with the overall intent or objective of FDI policy, people added.

“Increased FDI inflows will supplement domestic capital, technology transfer, skill development for accelerated economic growth and development across sectors, to support the implementation of Atmanirbhar Bharat,” the person added.

The government aims to facilitate investment into India through the policy reforms which have so far led to record FDI inflows into the country. FDI inflows in India stood at US$ 45.15 billion in 2014-2015 and have increased to US$ 81.97 billion during the financial year 2020-21, despite Covid 19 pandemic, which is 10% higher than US$ 74.39 billion compared to the previous financial year 2019-20.