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India’s Insurance Sector Opens Up: 100% FDI Limit Proposed in Union Budget 2025

June 25, 2025

In a landmark move aimed at invigorating the insurance industry, Finance Minister Nirmala Sitharaman announced in the Union Budget 2025-26 the proposal to raise the Foreign Direct Investment (FDI) limit in the insurance sector from 74% to 100%. This proposal is contingent upon the condition that the entire premium collected is invested within India. 

A Historical Perspective: Gradual Liberalization

India’s insurance sector has witnessed a progressive liberalization over the past two decades:

  • 2000: Private sector participation was permitted, with an initial FDI cap of 26%.

  • 2015: The FDI limit was increased to 49%, allowing greater foreign involvement while ensuring Indian control.

  • 2021: The cap was further raised to 74%, permitting majority foreign ownership under specific conditions.

  • 2025: The current proposal seeks to allow 100% foreign ownership, marking a significant shift in policy.

Implications of the Proposed 100% FDI Limit

  1. Enhanced Capital Inflows

Allowing full foreign ownership is expected to attract substantial capital investments from global insurers, facilitating expansion, technological advancements, and product diversification. 

  1. Increased Insurance Penetration

India’s insurance penetration remains low at approximately 3.7%, compared to the global average of 7%. The infusion of foreign capital and expertise could help bridge this gap, aligning with the government’s vision of “Insurance for All by 2047.” 

  1. Competitive Market Dynamics

The entry of global players is anticipated to intensify competition, potentially leading to better products and services for consumers. However, there are concerns about the impact on smaller domestic insurers. 

  1. Regulatory Considerations

The Insurance Regulatory and Development Authority of India (IRDAI) will need to update existing regulations to accommodate the new FDI limits, ensuring a balanced and fair operational environment for all stakeholders.

Conclusion

The proposed increase in the FDI limit to 100% in the insurance sector represents a significant policy shift, aimed at attracting foreign investment, enhancing insurance penetration, and fostering a more competitive market. While the move holds promise for the industry’s growth, careful implementation and regulatory oversight will be crucial to ensure that the benefits are equitably distributed and that the interests of domestic players and consumers are safeguarded.