Govt tweaks FEMA rules to clear the decks for FDI in LIC

New Delhi: The government has amended rules of the Foreign Exchange Management Act (FEMA), paving the way for up to 20 per cent foreign direct investment in the insurance behemoth LIC.

The government is planning to dilute its stake in LIC through the the Initial Public Offering (IPO). LIC in February had filed the Draft Red Herring Prospectus (DRHP) before the markets regulator Sebi for the IPO. Last month, Sebi gave approval to the draft papers and the insurer is in the process of filing a request for proposal with changes. Following the Cabinet approval, the Department for Promotion of Industry and Internal Trade (DPIIT) on March 14 had amended the Foreign Direct Investment (FDI) policy to facilitate overseas investment in LIC ahead of the mega public offer.

FEMA notification was required to operationalise the provisions DPIIT issued through a press note, including FDI policy changes that will allow large foreign portfolio investors to subscribe to shares of LIC.

"These rules may be called the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2022," said a gazette notification issued recently. The notification has inserted a paragraph in the existing policy, allowing up to 20 per cent FDI in LIC through the automatic route. Since the foreign inflows' ceiling for public-sector banks is 20 per cent under government approval route as per the present FDI policy, it has been decided to allow foreign investment of up to 20 per cent in LIC and other such corporate bodies.