Industrialists and members of the Confederation of Indian Industry watch the budget presentation by finance minister P. Chidambaram in Calcutta on Thursday. Picture by Kishor Roy Chowdhury

New Delhi, July 8: Insurers are ecstatic over the decision to raise the foreign direct investment (FDI) cap from 26 per cent to 49 per cent — a long-standing demand that has been finally conceded after a protracted debate over opening up of India’s financial sector.

“The increase in the FDI limit is a welcome move,” Aviva Life Insurance CEO Stuart Purdy said. “The raising of the equity cap will not only bring in more money but also help us expand the industry. Currently, of the Rs 3,179 crore capitalisation of private life insurance companies, only Rs 827 crore is FDI. By making it 49 per cent, the figure would go up to Rs 1,558 crore ($338.7 million).”

He added, “It will also allow the foreign shareholders to demonstrate an even higher level of commitment to India. We will try to increase the FDI three to four months after the amendment to the legislation.”

ICICI Prudential Life Insurance managing director Shikha Sharma said, “It is certainly a good move and will lend greater certainty to the market. Operationally, it makes no difference to us because we have enough liquid cash. There is no urgent need to increase the FDI. But, the two promoters of the company are likely to decide something in the latter half of the year.”

Reiterating the need for a saving instrument that will give a return to senior citizens above the market-determined rate, the finance minister has proposed to introduce a new scheme for this section.

Named as ‘senior citizens saving scheme’, it will offer an interest rate of 9 per cent. However, in lieu of introduction of this scheme, Chidambaram has scrapped the Varishtha Bima Pension Yojana operated by Life Insurance Corporation (LIC). The retirement scheme yielded a high 9.5 per cent rate of return.

Speaking to The Telegraph, LIC managing director R. K. Vashisht said, “Firstly, whatever money was collected under this scheme was not credited to LIC’s annual account. Secondly, it was the government who arranged the huge subsidy. So, it will have to bear the brunt on its own.”

Chidambaram said the present universal health insurance scheme “is skewed in the favour of non-poor”. As a result, only 11,408 below poverty line families have been covered by the scheme.

Stating that the scheme is not sustainable in its present design, the minister proposed to redesign the scheme to make it exclusive for persons and families below poverty line.