MUMBAI: The government may raise the overseas investment limit in insurance to 74% in the February budget, up from 49% now, possibly paving the way for foreign control of companies, said people with knowledge of the matter.The Insurance Regulatory and Development Authority of India ( IRDAI ) sought the views of various stakeholders on the matter in a December 2 letter at the direction of the government, they said. The letter to insurance companies and others has called for suggestions on raising the foreign direct investment FDI ) limit.“The government is seriously contemplating opening up the sector as it wants long-term stable money to be invested in the country. IRDAI is seeking inputs from industry people on government instructions and a report is expected to be submitted soon,” said a person involved in the discussions. “If all goes well, the government is planning to introduce this as part of the budget announcement and take a shortcut so that it gets Parliament’s nod as part of the Finance Bill.”The finance ministry and IRDAI did not reply to queries.It’s been proposed that the stake limit could be raised to 74% over time. However, foreign insurers want it to be set at 74% without delay, said the people cited above.The government increased the limit on FDI in insurance intermediaries to 100% on September 2.The initial inputs gathered by the regulator centre around unwinding provisions related to Indian ownership in insurance firms, solvency of firms owned by foreign promoters, exercising long-term liability contracts on overseas owners and securing policy holders’ rights in case the insurer is foreign owned.The government raised FDI in insurance under the automatic route to 49% from 26% in 2015. Prior to this relaxation, approval for investment up to 49% required approval by the Foreign Investment Promotion Board (FIPB), which was disbanded two years ago.Ownership and control had to remain with Indian residents as per the 2015 Insurance Act amendment that raised the overseas limit to 49%. Until then, the Insurance Act did not provide for this, so it was possible for offshore strategic partners to have substantial control rights, including reserved matters or veto rights on operational and financial policy decisions of the joint venture.Several overseas investors increased their stakes in Indian insurance joint ventures after the limit was raised in 2015. Higher FDI enabled companies to go in for initial public offerings. Listed life insurance companies include HDFC Life, SBI Life and ICICI Prudential. Listed general insurance firms are ICICI Lombard, GIC Re and New India Assurance.In the July budget, finance minister Nirmala Sitharaman had announced that the government will examine suggestions from various stakeholders to further open up FDI in the insurance sector.In order to facilitate the higher investment limit, the government will have to amend the Insurance Act, alter provisions pertaining to Indian ownership, monitor the solvency of foreign firms so that the local business is unaffected by any challenges faced by the parent and that they stick around to honour long-term contracts, said the people cited above.If some foreign banks are anything to go by, the government will need to tread carefully, said some experts.“The experience with foreign banks has been very mediocre as they have unwound business in India after their global operations took a hit,” said one of the persons cited above. “And, since insurance, especially life, is a long-term liability and the government will have little power over foreign-owned entities, it has to be very careful before taking such a call.”The question of control also has to be decided, said one person close to development.“The government is keen on Indian promoters running the show even with only 26% stake in the joint venture,” he said.Industry participants have also pointed to confusion about defining and structuring foreign direct investment and foreign portfolio investment (FPI) in a company. Some listed companies have had FPI investment over the years that if counted under FDI will amount to an 80-85% overseas stake.IRDAI may also raise queries over the impact of a foreign entity buying out or increasing stakes in a domestic firm and what happens to policyholders who have bought insurance due to their comfort with the Indian entity. Also, whether a change in ownership would be tantamount to nullifying contractual obligations.India has 24 life insurance companies and 34 general insurance firms. Only about four in 100 Indians have life cover, offering companies a potentially massive market in the world’s second-most populous country.