New Delhi, Aug. 10: The government is in favour of raising the foreign direct investment (FDI) cap for insurance companies from 26 per cent to 49 per cent.

“To increase the quality and reach of (insurance) services to people, the government is desirous of taking the foreign equity (limit) from 26 per cent to 49 per cent,” P.K. Bansal, minister of state for finance, told the Rajya Sabha while replying to a debate on the actuaries bill.

Though the government has in the past let it be known that it favoured lifting the cap on insurance companies, pressure from its Left allies has prevented it from taking a step in this direction. Bansal said since it takes up to seven years for an insurance start-up to break even and a significant amount of money has to be pumped in, it made sense to raise the foreign equity bar.

The actuaries bill, however, does not define investment limits. To increase FDI cap to 49 per cent, the Insurance Regulatory and Development Authority Act needs to be amended.

“There has to be enough money with those companies to attract funds,” Bansal said. He also said insurance penetration was low at 3.5 per cent and added that unless more funds came in, a large section would be deprived of insurance cover.

Mutlinational insurance firms as well as chambers like Assocham and the Confederation of Indian Industry have long been lobbying for an increase in FDI limit. Foreign embassies, representing the countries of the insurance companies, also supported the hike.