Important for:

UPSC, Haryana HCS, Punjab PCS
Prelims: FDI, insurance sector, FEMA
Mains: GS Paper 2 & 3 — Economic Policy, Investment Reforms

Why in News?

The Centre has notified 100% Foreign Direct Investment (FDI) in the insurance sector, marking a major reform to attract global capital and boost the industry.

What is FDI?

➤ Investment made by:

• Foreign companies
  → In Indian businesses

Key Features of the Policy

1. 100% FDI Allowed

• Through:
  → Automatic route

2. Indian Control Clause

• Key positions must be held by:
  → Indian residents

3. LIC Exception

• FDI limit remains:
  → 20%

4. Intermediaries Included

• Brokers, agents, third-party administrators

Why is This Important?

1. Capital Inflow

• Attracts foreign investment

2. Sector Growth

• Expands insurance penetration

3. Job Creation

• Boosts employment

4. Financial Inclusion

• More people get insurance coverage

⇢ Concerns

• Foreign dominance
• Profit repatriation
• Regulatory challenges

Global Context

• Many countries allow high FDI in financial sectors

India-Specific Impact

• Strengthens:
  → Insurance ecosystem
• Supports:
  → Economic growth

Key Insight for UPSC

➤ Economic reforms aim to balance:

✔ Growth + Regulation

PRELIMS PRACTICE QUESTIONS

Q1. FDI stands for:

A. Foreign Direct Investment
B. Financial Domestic Investment
C. Federal Direct Investment
D. None

✅ Answer: A

Q2. 100% FDI means:

A. No foreign investment
B. Partial investment
C. Full foreign ownership allowed
D. Government ownership

✅ Answer: C

Q3. LIC FDI cap is:

A. 100%
B. 20%
C. 50%
D. 10%

✅ Answer: B

Q4. Automatic route means:

A. Government approval needed
B. No approval needed
C. Only RBI approval
D. Parliament approval

✅ Answer: B

Q5. FDI helps in:

A. Reducing growth
B. Increasing capital
C. Reducing jobs
D. Trade

✅ Answer: B

CBL Mains Practice Question

“Liberalisation of FDI policies can accelerate economic growth but also raises regulatory concerns.”
Discuss with reference to the insurance sector in India.

FAQs

1. What is FDI?

Foreign investment in domestic businesses.

2. What is the new policy?

100% FDI in insurance sector.

3. What is the automatic route?

No prior government approval needed.

4. Why is it important?

Boosts investment and growth.

5. Which GS papers cover this?

GS2 and GS3.