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Budget moots FDI hike in insurance to 74%

Allows formation of one-person company with no restrictions on turnover and paid-up capital

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Budget moots FDI hike in insurance to 74%
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1 Feb 2021 9:12 PM IST

- Government to amend Insurance Act to allow higher FDI

- FDI limit in insurance increases to 74% from 49%

- Govt allows foreign ownership in insurance with safeguards

Bengaluru: Finance Minister Nirmala Sitharaman on Moday presented a balanced budget with sound allocation towards boosting activities in the services sector, growth of which is critical for India's economic revival.

In a significant move, the Budget-2021 proposes to increase the FDI (foreign direct investment) limit in insurance sector to 74 percent with necessary safeguards from 49 percent now. This is likely to attract FDI inflows in the country. Similarly, the budget proposes to divest government stake in one public-sector general insurance company and two public-sector banks. These moves, if realised, will improve efficiency with participation of private sector and supplement growth of services sector.

Similarly, the budget addressed a lot of demand of startups, which have emerged as the major employers in recent years. Firstly, the budget proposes to extend tax holiday for startups by another one year. It also allows formation of one person company with no restrictions on turnover and paid-up capital. These one person companies can also be opened by non-resident Indians, the budget proposes.

To boost the fintech ecosystem, the government will facilitate setting up of a world class fintech hub in Gujarat International Finance Tec (GIFT) city. The GIFT City is a planned business district that spans over 886 acres of land between Ahmedabad and Gandhinagar, which includes office spaces, residential apartments, schools, hospital, hotels, clubs, retail and various recreational facilities.

The Union Budget also came out with plans to provide relief to the badly battered aviation sector. It proposes tax holiday for aircraft leasing business that can provide some respite to the aviation companies. The government also plans to monetise more airports by selling stake to private companies.

For the port sector, the budget plans to set up seven port projects worth more than Rs 2,000 crore investment through public, private partnership (PPP) mode. Also, the centre plans to subsidy support to Indian shipping companies in global tenders floated by Ministries and CPSEs.

The budget proposes to allocate about Rs 12,473 crore to the Department of Space, a rise of 11 percent over the previous fiscal.

Services sector accounts for 54 percent of Gross Value Addition (GVA) and attracts 80 percent of the total FDI (foreign direct investment) inflows in the Indian economy. The sector has emerged as one of the largest employers in the economy.

Earlier, the Economic Survey pointed out that Indian services sector was witnessing a 'V' shaped recovery with key indicators showing positive momentum. Despite this revival, Gross Value Addition (GVA) is likely to contract by 8.8 percent in the current financial year (FY21) as compared to 5.5 percent rise registered in FY20.

The survey also noted that key indicators such as Services Purchasing Managers' Index (PMI), air passenger traffic, rail freight traffic, port traffic, foreign tourist arrivals and foreign exchange have bottomed out and are showing a 'V-shaped' recovery.

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