Foreign Direct Investment and its Impact on Insurance Sector

Abstract

In the insurance market, Foreign Direct Investments has helped in bringing about the saving habits among the masses which has resulted in creating assets of fixed nature. India being a country with an upcoming economy foreign investor view it as a striking investment opportunity, especially taking into consideration the rapid growth taking place in the country and the every growing need to increase investment in insurance sector. Insurance companies in India constantly face grave problems after witnessing years of high growth owing to expansions without much increase in earnings, constant increase in prices, reforms which are unduly delayed, and the market system with many weaknesses. With the sector facing all these problems, Indians government had decided to liberalize the sector by moving towards the direction of drastic reduction of trade barriers and lifting controls on certain aspects. The Government of India realizing the need to boost the insurance sector decided initially in the year 2005 decided to enhance the FDI in the sector which was then set as 26 percent to an enhanced rate of 49 percent. This rise in FDI was seen to have many implications for the economy of India.