Parliamentary committee for raising foreign investment cap in insurance to 49 percent

NEW DELHI (Reuters) - A parliamentary committee on Wednesday recommended raising to 49 percent the cap on foreign investment in insurance joint ventures to help draw more fund flows into a sector starved of capital and squeezed by regulations. The government is hoping that easing foreign ownership rules in the insurance business from the current 26 percent will help boost investor confidence in its ability to push through more difficult reforms including deregulating the country's labour markets. The committee report said that the new ownership limit would include foreign direct investment and portfolio investments in Indian owned and controlled insurance companies. "The committee is also of the view that incremental equity should ideally be used for expansion of capital base so as to strengthen the insurance sector," the report said. Canada's Sun Life Financial Inc, Prudential Plc, Nippon Life Insurance Co, Italy's Generali and Dutch insurer Aegon NV are among insurers operating in India through joint ventures with local companies. The committee's recommendations require the approval of both houses of parliament, but there is broad consensus on the proposals among political parties. The raising of the cap would bring in foreign investment worth up to $2 billion into the sector within a year of its implementation, according to industry officials. The recommendations are in line with Finance Minister Arun Jaitley's budget speech in July that called for a near doubling of the investment cap, with full Indian management and control. The government's approval for a proposal to raise the limit has been kept pending for a long time due to opposition by nationalist politicians, frustrating many overseas investors lured by low insurance penetration rates in India. Life insurance penetration in India is about 3.2 percent of gross domestic product in terms of total premiums underwritten in a year, much lower than more than 10 percent in Japan and nearly 6 percent in Australia. (Reporting by Nigam Prusty; Writing by Malini Menon; Editing by Sanjeev Miglani and Muralikumar Anantharaman)