On 14 March 2022, the government issued Press Note 1 of 2022 allowing 20% foreign direct investment (FDI) through the automatic route in the Life Insurance Corporation of India (LIC) a corporation established and governed under the Life Insurance Corporation Act, 1956 (LIC act).
Before this press note, Press Note 2 of 2021 amended the FDI Policy 2020 to allow up to 74% FDI in insurance sector participants, that is insurance companies and insurance sector intermediaries. However, LIC, as a statutory corporation, fell into neither of these categories. The statutory framework applicable to LIC, that is the LIC act, the Insurance Act, 1938, the Insurance Regulatory and Development Authority Act, 1999, and their delegated legislation was silent on FDI in LIC. This amendment to the FDI Policy was necessary to ensure that FDI in LIC is lawful.
By allowing FDI up to 20% in LIC, the government has treated it similarly to public sector banks, where the government holds more than 50% of the share capital, which are also allowed to receive FDI up to 20%. The essential difference is that while FDI in public sector banks is under the government route, FDI in LIC is through the automatic route.