100% FDI in insurance to boost innovation, sector growth: Moody’s
New Delhi: Moody’s Ratings stated on Tuesday that increasing the foreign investment limit in India’s insurance sector from 74% to 100% is expected to attract more global players and strengthen the industry's growth, reported PTI.
Further, strong premium growth is set to enhance profitability,
Currently, many foreign insurers operate in India through joint ventures and may now seek to raise their ownership stakes in local affiliates following this regulatory change.
"We view foreign investment as credit positive because it fosters product innovation and enhances capital adequacy, financial flexibility, and governance standards," Moody’s noted in a statement.
Budget reform & growth outlook
The proposal to increase foreign investment in insurance was introduced by Finance Minister Nirmala Sitharaman in the Union Budget 2025-26 as part of a broader wave of financial sector reforms.
Moody’s also expects the reduction in personal income tax to have a positive ripple effect on the insurance industry.
"Higher disposable income among the middle class, the sector’s key market, will particularly benefit health insurance, given rising awareness of well-being and financial protection post-COVID," the agency added.
With these reforms, India’s already favourable insurance industry growth prospects are expected to strengthen further.
In the budget, Sitharaman raised the personal income tax exemption limit from Rs 7 lakh to Rs 12 lakh and revised tax brackets, allowing those earning above the threshold to save up to Rs 1.1 lakh.
Premium growth & market trends
Moody’s highlighted that India’s strong economic growth is driving higher household incomes and greater demand for insurance. Additionally, the digitalisation of the economy is improving distribution and sales of insurance products.
In the first eight months of FY25, Indian insurers' total premium revenue surged 16% to Rs 9.2 trillion, driven by:
21% growth in health insurance
18% rise in new business written in the life sector
This growth outpaced FY24, when total premiums rose 8% year-on-year to Rs 11.2 lakh crore.
Fiscal impact & consolidation
Moody’s noted that the budget signals a slower pace of fiscal consolidation as the government focuses on reinforcing economic growth.
The reduction in personal income tax rates is expected to boost middle-class spending power, benefiting corporates and the financial sector. However, the foregone tax revenue will moderate the pace of fiscal deficit reduction, even as total government spending declines as a share of GDP.
Additionally, the proportion of spending allocated to debt servicing continues to rise.
The Finance Minister projected India’s fiscal deficit at 4.8% of GDP for FY25 and 4.4% for FY26.
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