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Topic Introduction
However, many analysts believe that sector will not get immense benefits from the move. There are the industry leaders that are established and doing very well. They reached the breakeven point and dont need further capital. They will not be impacted by the FDI change. However, there are companies that do have an issue with capital and have not been doing too well. They are the ones who are excited about the FDI reforms. Moreover, there are the newcomers who have been there for the past four-to-five years but most of them are in the process of building up their portfolios and are, in fact, struggling. They also need more capital. But these opportunities dont really excite the foreign players, not because India is no longer attractive, but because they are facing a lot of pressure in their own markets. Other opponents argue that the hike would have an adverse impact on the economy and decision will enable the foreign companies to gain control over the domestic savings. Consequently, the upheavals in foreign finance market will have much larger impact in the country. However, the arguments of proponents of the move are more acceptable than that of opponents. Is a prelude to the move, RBI considered that as the economy integrates further with the global economy and domestic economic and political conditions permit, there may be a need to relook at the sectoral caps (especially in insurance) and restrictions on FDI flows (especially in multi-brand retail). RBI report on FDI stated that the demands for raising the present FDI limits of 26 per cent in the insurance sector may be reviewed taking into account the changing demographic patterns as well as the role of insurance companies in supplying the required long term finance in the economy. And since insurance is a high gestation, capital intensive business and the sector needs fresh capital to fund its existing businesses and expansion. Growth of insurance sector will also help in developing other sectors and providing capital to the government for long-term infrastructure projects. Cross-country analysis also supports the increase in FDI limit as sectoral cap was higher than India even in China for insurance and a few other sectors, while countries like Brazil and Russia have higher sectoral caps than India across most of the sectors. A strong domestic consumption, rural health, education, connectivity, high savings, low dependency on exports, burgeoning middle class, positive demographics, talent pool and intellectual capital are some of the key strengths of our economy. However, somewhere down the line, some bottlenecks started emerging as we did not pay enough attention to re-engineering and making our institutions contemporary with the growing needs and changing environment. One of the underlying needs is the building of an institutional and financial infrastructure and the latest move is a right step in the right direction.