Tuesday 28 June 2022
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FDI up to 20% in LIC through automatic route gets cabinet approval

The FDI is needed in LIC to facilitate the participation of foreign funds in the state-owned insurance behemoth’s upcoming initial public offering

The union cabinet has approved foreign direct investment under the automatic route in the Life Insurance Corporation of India (LIC), government sources told CNBC-TV18 on 26 February.

Up to 20% of FDI will now be permitted under the automatic route in LIC and the existing FDI policy has also been “simplified and enhanced”, they added.

Notably, the FDI ceiling for banks is 20% under the approval route, and a similar limit has been maintained for LIC. The choice of the automatic route however is expected to expedite the capital-raising process.

“The FDI reform will facilitate foreign investment in LIC and other such corporate bodies, for which the government may have a requirement for disinvestment purposes,” the sources said.

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

The union cabinet and Cabinet Committee on Economic Affairs (CCEA) meet was scheduled today, sources had earlier informed.

The cabinet was expected to approve the proposal to allow FDI in LIC in order to facilitate the participation of foreign funds in the state-owned insurance behemoth’s upcoming initial public offering.

The proposal had suggested incorporating a special provision for FDI in LIC in the Consolidated FDI Policy.

Allowing FDI in LIC is seen as a “crucial move” as the government plans to sell a stake via by March 2022.

This is because, as per the existing FDI policy issued by the Department for Promotion of Industry and Internal Trade (DPIIT), foreign investment is allowed in “insurance companies” and “intermediaries or Insurance Intermediary”.

Since LIC is neither a company nor an intermediary, it was not covered by either. Further, no provision of FDI under either the LIC Act, 1956 or the Insurance Act, 1938 or the regulations has been made. Even the Insurance Regulatory and Development Authority Act, 1999 doesn’t have such provisions.

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