On February 1, 2025, Finance Minister Nirmala Sitharaman announced a significant policy change during her Budget speech, raising the Foreign Direct Investment (FDI) limit in the Indian insurance sector from 74% to a full 100%.
This move is aimed at attracting more foreign capital into the insurance market, which has historically been underpenetrated compared to global standards.
This came as a major revelation when, during the Budget 2025 speech, the Finance Minister, Nirmala Sitharaman, announced. The new FDI limit on insurance will be applicable only to firms having 100% of their premium income within India; the move aims to provide an impetus to increased foreign investments in the still untapped insurance market of the country. Sitharaman also suggested that the government would revise and streamline conditions on foreign investment.
The decision to do so has become possible amid increasing foreign focus on the Indian insurance industry.
The changes have been highly valued by independents as they opened a new possibility to attract higher amounts of capital into the sector that continues to be one of the least developed in terms of insurance density compared to the world average.
Shiju PV, the Senior Partner at IndiaLaw LLP, concluded that a boost in the rupee will be witnessed due to the increment in the FDI as realized in the revised limit. Adding to this, he pointed out that insurance has been the most favored sector in terms of FDI inflow in the service sector during the last year, and the current step will fasten the pace of investment in it.
The new foreign investment structure was predicted to prompt foreign companies to actively increase their business in the Indian insurance sector by Dewan P N Chopra & Co MP Dhruv Chopra. He urged the need to sustain policy support for the development of the sector.
Factors Contributing To Stock Declines
- Unchanged Allocations: Investors were expecting a rise in budgetary allocations to support growth initiatives; however, the status quo has led to disappointment.
- Profit Booking: After significant gains prior to the budget announcement, many investors opted to realize profits, contributing to downward pressure on share prices.
- Market Sentiment: The overall sentiment in the market regarding infrastructure investments has been cautious, particularly given the economic challenges faced by various sectors.