100% FDI in insurance a step forward, but safeguards unclear: USTR report
Mumbai, Apr 2, 2025
These safeguards include requirements such as a majority of board members being resident Indians and higher solvency requirements for foreign-invested insurers domiciled outside India
While India has announced raising the cap on foreign direct investment (FDI) in insurance from 74 per cent to 100 per cent, it remains unclear whether certain safeguards for domestic firms introduced in 2021 will be removed, says a report by the Office of the United States Trade Representative (USTR).
These safeguards include requirements such as resident Indians comprising a majority of the members of a board, and higher solvency for insurers domiciled outside India.
“According to India’s 2025 Union Budget, India will raise its FDI cap on the insurance sector from 74 per cent to 100 per cent. While this represents progress, it still is not clear if India will remove safeguards instituted in 2021,” the report said.
According to reports, the government is reviewing and simplifying rules to increase the foreign direct investment (FDI) limit in the insurance sector to 100 per cent.
Meanwhile, the report has highlighted that India maintains an uneven playing field in insurance. The 2024 report by the Office of the United States Trade Representative (USTR) had raised the same concerns.
“State-owned companies are not subject to the same law and prudential supervision as private firms and enjoy various guarantees from the government. Currently, the Indian Government maintains an explicit sovereign guarantee on every Life Insurance Corporation (LIC) policy. As a result, many customers choose to buy LIC policies over those offered by private insurers, giving LIC an unfair competitive advantage,” the report said.
Additionally, the report says Indian regulations give the country’s reinsurers a mandatory first order of preference (or right of first refusal) in the reinsurance business.
“This results in unequal treatment for foreign reinsurers and consolidates risk in a small number of Indian reinsurers, which is counter to global best practices of global diversification of risk,” the report said.
In India, state-owned GIC Re is the only domestic reinsurer, which has been in the business since 1972. After liberalisation in the insurance industry in 2001, GIC Re was designated “national reinsurer” and has the advantage of the first right to refusal and obligatory cession. Currently, there are also 13 foreign reinsurance branches (FRBs), set up by global reinsurance companies, including Munich Re, Swiss Re, and Lloyd’s, operating in India.
Separately, the USTR report reiterates that under India’s branch authorisation policy, foreign banks are required to submit their internal branch expansion plans annually, and their ability to expand is hindered in a non-transparent manner.
In January, HSBC India, the local arm of London-headquartered HSBC, received approval from the Reserve Bank of India (RBI) to open 20 branches, one each in 20 cities.
The report also says banking in India is dominated by state-owned banks, which account for approximately 60 per cent of market share and 67 per cent of the branches in the country. Most privately owned banks are Indian-owned, with foreign banks constituting less than 0.6 per cent of the bank branches in India.
Additionally, the report reiterated concerns over the 30 per cent market cap on players offering India’s real-time payments services on Unified Payments Interface (UPI). The concerns were previously mentioned in a USTR report in 2024.
It said that foreign digital payment companies were given until January 2023 to ensure their market shares met the 30 percent limit, but the Ministry of Finance has not enforced this market share ceiling. However, the timeline to enforce the market cap has been pushed by another two years for the second consecutive time to the end of 2026.
“The United States also has expressed concern over plans to expand the adoption of a National Common Mobility Card (NCMC) that only uses a domestic proprietary QR code standard, which disadvantages foreign suppliers,” it said.
[The Business Standard]
