Cabinet Approves 100% FDI in Insurance
15.12.2025
Cabinet Approves 100% FDI in Insurance
Context
The Union Cabinet has approved a proposal to raise the Foreign Direct Investment (FDI) limit in insurance companies from 74% to 100%. This change is set to be implemented through the Insurance Laws (Amendment) Bill, 2025.
What is FDI?
Foreign Direct Investment (FDI) is when a non-resident investor acquires an equity stake (of 10% or more) in an Indian company. This investment signifies a lasting interest and grants the non-resident investor some degree of control or management influence.
In the context of the insurance sector, 100% FDI means a foreign insurer can now hold full ownership in an Indian insurance company, subject to Indian regulatory conditions.
Foreign investors infuse capital into Indian companies through various methods:
- Subscription to shares (via MoA, preferential allotment, rights/bonus issue, private placement).
- Mergers, demergers, and amalgamations.
- Share purchase from existing residents.
- Conversion of convertible instruments/notes, swap of instruments, etc.
FDI is regulated under FEMA, sectoral caps, pricing guidelines, entry routes, and conditions laid down by the Government/RBI.
|
FDI Route |
Prior Approval |
Conditions |
|
Automatic Route |
No prior Government or RBI approval required. |
Investment must comply with sectoral caps, FEMA rules, SEBI/RBI norms, etc. Investor only needs to report and file prescribed forms. |
|
Government Route |
Prior Government approval is mandatory. |
Application is made through the Foreign Investment Facilitation Portal (FIFP). Approval may carry specific conditions (lock-in, reporting, security conditions, etc.). |
FDI is strictly not allowed in several sectors, including:
- Lottery business, including online lotteries.
- Gambling and betting, including casinos.
- Chit funds (except some NRI/OCI non-repatriation cases).
- Nidhi companies.
- Trading in Transferable Development Rights (TDRs).
- Real estate business and construction of farmhouses.
- Manufacturing of cigarettes, cigars, cigarillos of tobacco/substitutes.
- Sectors not open to private investment (e.g., atomic energy, certain railway operations).
- Technology collaboration (brand/franchise/management) is also prohibited in lottery and gambling/betting.
Progressive FDI Liberalisation in Insurance:
The FDI limit in the insurance sector has been progressively liberalized over the years:
- 2015: FDI cap raised from 26% to 49%.
- 2021: FDI cap raised from 49% to 74%, with safeguards concerning Indian management and control.
- 2025 (proposed): FDI cap is to be raised to 100%. This change will require amendments in the Insurance Laws (Amendment) Bill, 2025, and changes in the LIC Act, 1956, the IRDA Act, 1999, and the Insurance Act, 1938.
Conclusion
The move to 100% FDI in the insurance sector is the culmination of a decade-long liberalization process. This landmark decision aims to attract significant global capital, boost competition, and enhance insurance penetration across India.