The DIPP has, by its Press Note No. 4 (2015 Series) dated April 24, 2015 (“Press Note 4”) allowed FDI up to 49% (forty nine percent) in the pension sector, with immediate effect. The decision of the Government is pursuant to the enactment of the Insurance Regulatory & Development Authority Act, 2013, as FDI limit in the pension sector is linked to that in the insurance industry by virtue of Section 24 of the Pension Fund Regulatory and Development Authority Act, 2013 (“PFRDA Act”). Since the FDI in the insurance sector has been increased to 49% (forty nine percent) from the erstwhile 26% (twenty six percent), through Press Note 4, DIPP has now permitted FDI up to 26% (twenty six percent) in the pension sector under the Automatic Route (i.e. without requiring prior permission from the Indian Government) and FDI in the sector beyond 26% (twenty six percent) and up to a composite cap of 49% (forty nine percent) under the Approval Route, (i.e. with the prior approval of the Indian Government). The Press Note 4 stipulates that FDI in pension funds in India is subject to the following additional conditions:
- FDI in pension funds is permitted under the PFRDA Act;
- Indian entities engaged in pension fund management activities which are seeking foreign equity investment will have to obtain necessary registration from the Pension Fund Regulatory and Development Authority (“PFRDA”) and will have to comply with the rules and regulations under the PFRDA Act;
- In the event that the foreign investment (whether by fresh issuance of shares or by transfer of existing shareholding) would result in acquisition of control or ownership of an existing Indian pension fund by a foreign investor, or transfer of control or ownership of an existing Indian pension fund from resident Indian citizens and/or Indian companies owned and controlled by resident Indian citizens to such foreign investor, it will be subject to approval of relevant authorities inter alia the Foreign Investment Promotion Board in consultation with the Department of Financial Services and the PFRDA. However, the onus for the compliance of these conditions would be on the Indian company. It is clarified that meaning of ownership and control would be as per the extant FDI policy issued by the DIPP.
The Finance Minister, Mr. Arun Jaitley while addressing the industry players in the First Pension Conclave in August last year had said that the increase in the FDI limit to 49% (forty nine percent) will permit inflow of foreign capital, investment expertise and new technology. With increase in the FDI permissible limits in insurance and pension sectors, the government expects inflows of approximately US$ 10,000,000,000 (United States Dollars Ten Billion) into the two sectors.