Foreign direct investment in LIC

The Government of India recently decided to allow 20% Foreign Direct Investment (FDI) in LIC (Life Insurance Corporation). This is to be done by amending the Foreign Exchange Management Rules (FEMA).

What is the plan?

The DFS, DIPAM are to create a plan to amend the FDI in insurance sector after consulting DPIIT. DFS is Department of Financial Services. DIPAM is Department of Investment and Public Asset Management and DPIIT is Department for Promotion of Industry and Internal Trade (DPIIT). Why is the consultation required? DIPAM operates under Finance Ministry and DPIIT operates under commerce and industry ministry.

Changes to be made

  • Changes have been proposed in FEMA (Foreign Exchange Management) rules
  • 20% FDI in LIC
  • The current FDI policy of India does not foreign investments in body corporates. This is to be changed. A body corporate is an entity that has separate legal existence.

How is body corporate different from company?

Company is any organization that is registered under the Companies Act 2013. On the other hand, a body corporate is defined as the company incorporated outside India. This does not include co – operative society or central government institutions. For instance, Reliance, Tata Steel are all companies. Microsoft, Alphabet, Facebook are all body corporate. If the same company is incorporated in India or registered under Companies act, 2013, then they are called company. For instance, Google India Private Limited is a company while Google is a body corporate.

Challenges in making the changes

Currently 74% of FDI is allowed in the insurance sector. However, this does not apply to LIC as it has its own statute. That is the operations of LIC are governed by LIC act. LIC is a statutory body. A statutory body is one which is governed by a law. Such bodies have their own statutes (rules of the organization). Therefore, the GoI has to amend the LIC act along with FEMA rules to implement the changes related to LIC.

Predictions made by GoI

According to GoI, the entire 20% cap may not be used by the foreign companies. Investments till 5% is expected.

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