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FDI Limit Under Automatic Route In LIC

FDI Up To 20% Under The “Automatic Route” In LIC:

The Union Cabinet cleared an amendment to the FDI Policy to allow Foreign Direct Investment (FDI) up to 20% under the “automatic route” in Life Insurance Corporation (LIC) ahead of its proposed Initial Public Offer (IPO).

  • The government expects to mobilize Rs 63,000-66,000 crore from the proposed share sale to meet its disinvestment target of Rs 78,000 crore for FY 2021-22.
  • LIC is fully owned by the government. It was set up in 1956. It has the biggest share in India’s insurance business.
  • In most contexts, disinvestment typically refers to sale from the government, partly or fully, of a government-owned enterprise.
  • A company or a government organisation will typically disinvest an asset either as a strategic move for the company, or for raising resources to meet general/specific needs.
  • At present, the FDI policy does not prescribe any specific provision for foreign investment in LIC which is a statutory corporation established under LIC Act, 1956.
  • The policy permits FDI in insurance companies and intermediaries or insurance intermediaries in the insurance sector.
  • The FDI ceiling for public sector banks is 20% on the government approval route.
  • While the government had last year raised the FDI limit in the insurance sector to 74% from 49%, it did not cover LIC that is governed by a specific legislation.
  • Since LIC does not fall in any of these categories and no limit is prescribed for foreign investment in LIC under the LIC Act, the government has decided to allow foreign investment up to 20% for LIC and other corporate bodies.
  • In order to expedite the capital raising process, such FDI has been kept on the automatic route, as is in the case of the rest of the insurance sector.

FDI:

  • FDI is the process whereby residents of one country (the home country) acquire ownership of assets for the purpose of controlling the production, distribution and other activities of a firm in another country (the host country).
  • It is different from Foreign Portfolio Investment where the foreign entity merely buys stocks and bonds of a company. FPI does not provide the investor with control over the business.
  • Flows of FDI comprise capital provided (either directly or through other related enterprises) by a foreign direct investor to an enterprise.

Routes through which India gets FDI:

  • Automatic Route: In this, the foreign entity does not require the prior approval of the government or the RBI.
  • Government route: In this, the foreign entity has to take the approval of the government.
  • The Foreign Investment Facilitation Portal (FIFP) facilitates the single window clearance of applications which are through approval route.

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