THE Government on Saturday permitted up to 20 per cent foreign direct investment (FDI) under automatic route in IPO-bound LIC with an aim to facilitate disinvestment of the country’s largest insurer, sources said. The decision in this regard was taken by the Union Cabinet, chaired by Prime Minister Narendra Modi. The Government has approved listing of shares of LIC on the stock market through an IPO by part-sale of its stake in the insurer and raising fresh equity capital. Foreign investors may be desirous of participating in the mega IPO. However, the existing FDI policy did not prescribe any specific provision for foreign investment in LIC, which is a statutory corporation established under the LIC Act, 1956.

 

Since as per the present FDI policy, the foreign inflows ceiling for public sector banks is 20 per cent under government approval route, it has been decided to allow foreign investment of up to 20 per cent for LIC and such other corporate bodies. Further, in order to expedite the capital raising process, such FDI has been kept under the automatic route, as in the case of the rest of the insurance sector, one of the sources said. Increased FDI inflows will supplement domestic capital, technology transfer, skill development for accelerated economic growth and development across sectors. Sources said other minor enhancements in the existing FDI policy have also been carried out in order to provide an updated, consistent and easily comprehensible FDI framework.

 

The FDI policy currently lists only ‘Insurance Company’ and ‘Intermediaries or Insurance Intermediaries’ under the insurance sector. LIC being a statutory corporation, is not covered under either insurance company or intermediaries or insurance intermediaries and no limit was prescribed for foreign investment in LIC under the LIC Act, 1956; the Insurance Act, 1938; the Insurance Regulatory and Development Authority Act, 1999 or regulations made under the respective laws. “The reform in the FDI policy will have several benefits. It would facilitate foreign investment in LIC and such other corporate bodies, for which the government may have a requirement for disinvestment purposes. The reform will facilitate ease of doing business,” a source said.