Ordinance aims to allow foreign companies to hold a stronger position in the Indian insurance industry
The Indian government has been mulling over an ordinance concerning the insurance industry for some time. The issue involves allowing foreign insurance companies to hold greater ownership over local domestic insurance endeavors. Some lawmakers had suggested that this would be a bad move for the domestic market, making it more difficult for domestic companies to compete in India or changing how these companies operate altogether. Supporters of the measure suggested that foreign companies could help boost the country’s economy.
Foreign companies will be able to hold 49% ownership in domestic insurance endeavors
India’s leaders have approved the ordinance that will allow foreign companies to hold greater ownership over local insurance ventures, but the country’s Parliament must still approve this measure within the next six months in order for the ordinance to take effect. The government wants to push for more economic growth and believes that the insurance industry may be the key to this endeavor. According to the ordinance, foreign companies will be able to hold 49% ownership in local ventures, up from the 26% they were limited to in the past.
Foreign companies cannot install their own management teams in domestic ventures
The ordinance notes that while foreign companies can hold greater ownership in local ventures, management of insurance companies that receive investments from foreign entities must remain in Indian hands. This is meant to ensure that foreign companies do not have absolute control of India’s insurance market. These companies may not have the understanding of the market required to direct insurance ventures to continued success and may not install their own management team if they decide to invest in domestic companies.
Limiting management opportunities may make some investors shy away from domestic ventures
There are some concerns that limiting the management power of foreign companies may not create an attractive investment opportunity. Companies that want to invest in local insurance ventures and hold a greater level of ownership in these organizations often want to ensure that their investments are protected. This typically involves making changes to management that direct a venture toward a path that is more accommodating of its investor’s interests.