India Raises Insurance Investment Cap in First Big Win for Modi

India’s parliament voted to increase the foreign investment limit in the insurance industry, the first major legislative victory for Prime Minister Narendra Modi as he seeks to overhaul Asia’s third-biggest economy.

The bill, stuck in parliament since 2008, will allow foreign companies to own 49 percent of insurance companies in India, up from 26 percent. Majority ownership and control will remain with resident Indians. The bill now requires presidential assent, a formality, to become law.

The insurance bill shows that Modi can get legislative changes passed through the opposition-controlled upper house, which had blocked the measure since he took power last May. Now he must work to pass proposals to ease land clearances and implement a nationwide sales tax, moves that will do more to attract investors.

The insurance bill will permit companies including American International Group Inc. and Standard Life Plc to increase their stakes in local insurers. That will allow them to boost investment and expand in the world’s second-most populous country, where insurance penetration is less than the global average.

The law makes permanent an executive order issued by Modi in December to raise the cap. The initiative, first proposed under former Prime Minister Manmohan Singh, has been emblematic of India’s tit-for-tat politics: Modi’s Bharatiya Janata Party blocked it while in opposition, and then Singh’s Congress party refused to let it pass until now.

India’s insurance penetration, or premiums underwritten as a proportion of a country’s total economic output, is less than the global average of 6.5 percent. Higher insurance penetration can help Modi as he looks to raise funds to upgrade the nation’s roads, ports and other infrastructure.

–With assistance from Abhijit Roy Chowdhury in New Delhi.