The timing of the proposed rejig of distribution economics by IRDAI (Insurance Regulatory and Development Authority) is interesting as it came six months after India allowed centum foreign ownership in the sector.

IRDAI is re-engineering the financial metrics of distribution — axing expenses of management (EoM) limits, tightening commission and moving towards a more technology-driven distribution architecture as the regulator now feels sector has become “high cost and commission-led”.

Proposing a phased reduction in EoM limits, the IRDAI, in its consultation paper, “Recalibrating Economics of Insurance Distribution,” said that for life insurers, the ceiling will move to 15% of gross direct premium income (GDPI) within two years and 12.5% within five years from the present 30-35% levels.

General insurers would see the benchmark shift from gross written premium to domestic GDPI, with the ceiling trending towards 20% within five years against 32.1%.

The timing makes the policy sequence worth examining. India first removes the ownership ceiling, then it starts addressing the distribution-cost structure. Foreign investor interest has already increased. IRDAI chairman Ajay Seth had said in June about “significant” interest from foreign promoters seeking 100% ownership.

The country’s insurance sector saw the foreign direct investment (FDI) limit move to 100% from 74%, with the new framework coming into force this February.

Foreign interests are understandable as India’s gross premium was ₹11.93 lakh crore in FY25, but penetration was only 3.7% of GDP, implying substantial room for growth.

Questions arise as to whether the proposed EoM/commission structure treats new insurers and established players differently during the transition period. That could determine whether it is merely a broad efficiency reform or does it materially alter the competitive entry equation.

IRDAI proposes simpler registration, significantly lower entry and capital requirements, reduced regulatory fees and greater flexibility for distributors to undertake insurance as well as other financial and non-financial activities, thus expanding avenues for business diversification and revenue generation and allowing people in relatively small markets to also venture into insurance business.

Cost curve

Justifying the proposal, IRDAI indicates that distributor commissions have risen sharply, with additional payments such as promotional costs, brand fees and rewards adding substantially to base commissions.

According to the reports, the commission ratio in the public life insurance sphere was 5.18% in FY25, while it was higher at about 9% in the private sector.

Bancassurance is notably expensive: according to reporting on the consultation paper, banks account for nearly 45% of private life insurers’ premiums, while total payouts in some multiple-bank deals can be extremely high.

Highlighting that commissions outran premiums by two to eight times, the IRDA paper said that in the two years since the 2023 reforms, motor insurance through brokers saw commissions surge 259%, while premiums grew just 34%. That’s nearly eight times faster.

Life corporate agents saw a similar pattern as commissions jumped 125% on 28% premium growth, with payouts now accounting for about 27% of first-year premiums.

Across general insurance, the average broker commission doubled to 17% of premium cover. Motor third-party average commission surged from 4.3% to 22%.

For a foreign-owned insurer, a fall in distribution inefficiencies could change the competitive dynamics because the pressure is greatest in private life insurance (due to expensive bancassurance and agency expansion), health insurance (due to intermediary-heavy sales), and new entrants (as they need customer acquisition scale).

Juggling act

Going by the proposals, insurance distribution is seen more as a juggling act: expand penetration, cut acquisition costs and go digital, without dropping distributor incentives.

The IRDAI’s proposals, which have come at a delicate juncture, are an attempt to move India’s insurance industry from an intermediary-led model to a more transparent, differentiated and digitally enabled distribution architecture.

The consultation paper also proposes changes to digital distribution and customer protection. The reforms assume significance, as insurance distribution is heavily intermediary-dependent, even as digital and insurtech channels expand.

Although it does not curb bancassurance, the greater concern is economics, as IRDAI wants to prohibit volume-linked or reward-linked incentives for bank and NBFC employees selling insurance, while bringing direct and indirect remuneration within the commission framework.

Banks are among the most important corporate-agent channels, with 237 banks among 661 being active corporate agents as of March 2025.

The proposals could make aggressive cross-selling less attractive. Banks may consequently prioritise products with better economics or stronger customer relevance.

However, the bancassurance model has structural advantages — branch reach, customer data and established relationships and embedded — so lower commissions do not automatically make the channel unviable.

Nevertheless, for insurtechs and fintechs, the impact could be double-edged. On the positive side, lower traditional distribution costs could potentially improve the financial metrics of digital acquisition. Insurtechs that can sell, underwrite, and service policies digitally could benefit as insurers seek lower-cost channels. India already has 150-plus active insurtech players, with aggregate valuations above $15.8 billion and revenues of about $0.9 billion in 2024, according to Boston Consulting Group.

IRDAI is also proposing Market Infrastructure Institutions (MIIs) for insurance, with Bima Sugam envisaged as a digital, pull-based distribution infrastructure, reducing dependence on individual intermediaries and creating new opportunities for technology providers.

However, fintechs that depend heavily on commissions, lead generation or embedded insurance could face pressure. The proposed ban on dark patterns, mandatory suitability and customer-needs documentation, commission disclosure, seller-level identification and clawback of commissions in cases of mis-selling raise compliance costs.

For customers, the intended benefits are lower distribution costs, greater transparency, less forced bundling, better product suitability and potentially more competitive pricing.

The insurance regulator is also replacing a more uniform commission framework with limits differentiated by product, distribution channel, complexity and effort involved.

The interim risk is that if commissions are cut too sharply, insurance penetration could suffer, because India’s market still depends heavily on intermediaries for customer education and trust-building. Even otherwise, the country’s insurance penetration level of 3.7% (2.7% for life and 1% for non-life) is below the global average of 7.3%.

The proposed reset is positive for policyholders and digital platforms, but its second-order effect may be to make India’s fully liberalised insurance market more contestable for global capital.

According to the RBI, Singapore, the Netherlands, the U.S., and Canada accounted for around 74% of the inflows. File.
| Photo Credit: Reuters

Image used for representational purposes.
| Photo Credit: Getty Images/iStockphoto

Foreign investors remained sellers in Indian equities, dumping more than ₹62,853 crore of shares in the first fortnight of June amid heightened geopolitical tensions, concerns over global economic growth and persistent weakness in the rupee.

With the latest outflows, total withdrawals by Foreign Portfolio Investors (FPIs) from Indian equities have surged to ₹2.87 lakh crore so far in 2026, surpassing the ₹1.66 lakh crore pulled out during the entire calendar year 2025, according to data from the National Securities Depository Ltd (NSDL).

Pabitro Mukherjee, deputy vice president-research at Bajaj Broking, said FPI flows in the coming week will depend on developments in the U.S.-Iran peace talks, the U.S. Federal Open Market Committee’s policy decision, the Bank of Japan’s rate decision and commentary from major central banks.

According to NSDL data, FPIs have remained net sellers in every month of 2026 except February. They withdrew ₹35,962 crore in January before turning net buyers in February, investing ₹22,615 crore, marking the highest monthly inflow in 17 months.

The trend, however, reversed sharply in March, when foreign investors pulled out a record ₹1.17 lakh crore. The selling pressure continued in April with net outflows of ₹60,847 crore and in May with withdrawals of ₹32,963 crore. In June, FPIs have already withdrawn ₹62,853 crore during the first two weeks of the month.

Himanshu Srivastava, principal, manager research, Morningstar Investment Research India, said investors continue to navigate an environment marked by elevated uncertainty around the interest-rate trajectory of major central banks, geopolitical developments and concerns over global growth.

“In such phases, emerging markets often witness tactical de-risking as investors seek safety and rebalance portfolios towards developed markets and defensive assets,” he said.

Mr. Srivastava added that India’s relatively rich valuations compared with several emerging-market peers may also have prompted foreign investors to adopt a more selective approach towards allocations.

Market participants said the persistent depreciation of the rupee has emerged as another key factor behind the sustained outflows.

The Indian currency has weakened nearly 6% so far in 2026 and around 10% over the past year, falling from the mid-80s level to about 95 against the U.S. dollar despite efforts by the Reserve Bank of India (RBI) to stabilise the currency.

However, the pace of FPIs outflows moderated significantly in the latter half of last week, indicating that while risk aversion remained elevated, the intensity of foreign selling eased gradually.

On Friday, FPIs sold equities worth only ₹1,082 crore in the cash market.

V.K. Vijayakumar, Chief Investment Strategist at Geojit Investments, said recent geopolitical developments and expectations of a peace agreement between the U.S. and Iran have resulted in a sharp correction in Brent crude prices to below $87 per barrel.

“For a large oil importer like India, this is a significant positive. India is facing a balance of payments deficit of about $60 billion in FY27,” he said.

Given the importance of foreign portfolio flows in financing the current account deficit and supporting the balance of payments, policymakers have announced a series of measures aimed at attracting overseas capital.

These include the RBI absorbing hedging costs on FCNR deposits mobilised by commercial banks, expanding the forex swap window, increasing access to government bonds through the Fully Accessible Route (FAR), and raising investment limits for non-resident Indians and overseas citizens of India in domestic equities.

In contrast to the equity outflows, FPIs invested more than ₹13,200 crore in debt securities through the FAR route during the first fortnight of June, taking total investments through this channel to nearly ₹28,000 crore so far this year.

Published – June 14, 2026 12:07 pm IST

Magnifying glass with the letters FDI on the background of stacks of coins. Business concept
| Photo Credit: Getty Images/iStockphoto

Representative image
| Photo Credit: Getty Images/iStockphoto

Foreign direct investment (FDI) inflows into India have crossed the $1 trillion milestone in the April 2000-September 2024 period, firmly establishing the country’s reputation as a safe and key investment destination globally.

According to data from the Department for Promotion of Industry and Internal Trade (DPIIT), the cumulative amount of FDI, including equity, reinvested earnings and other capital, stood at $1,033.40 billion during the said period.

About 25% of the FDI came through the Mauritius route. It was followed by Singapore (24%), the U.S. (10%), the Netherlands (7%), Japan (6%), the U.K. (5%), the UAE (3%) and Cayman Islands, Germany and Cyprus accounted for 2% each.

India received $177.18 billion from Mauritius, $167.47 billion from Singapore and $67.8 billion from the U.S. during the period under review, as per the data.

The key sectors attracting the maximum of these inflows include the services segment, computer software and hardware, telecommunications, trading, construction development, automobile, chemicals, and pharmaceuticals.

According to the Commerce and Industry Ministry, since 2014, India has attracted a cumulative FDI inflow of $667.4 billion (2014-24), registering an increase of 119% over the preceding decade (2004-14).

FDI equity inflows into the manufacturing sector over the past decade (2014-24) reached $165.1 billion, marking a 69% increase over the previous decade (2004 -14), which saw inflows of $97.7 billion, an official has said.

To ensure that India remains an attractive and investor-friendly destination, the government reviews FDI policy on an ongoing basis and makes changes from time to time after having extensive consultations with stakeholders.

The overseas inflows into India are likely to gather momentum in 2025, as healthy macroeconomic numbers, better industrial output and attractive PLI schemes will attract more overseas players amid geopolitical headwinds, experts said.

They added that despite the global challenges, India is still the preferred investment destination.

Avimukt Dar, Founding Partner, INDUSLAW, said the inflows are likely to continue in a robust form. There is strong anticipation that private equity financing in the tech sector, which had slowed down in the past, will pick up again since various funds have enjoyed good exits in the public markets and are ready to deploy again.

“The government can continue with structural reforms, particularly in the space of M&A, by nudging SEBI to make the public takeover regime more friendly for foreign players,” Mr. Dar said.

Rumki Majumdar, an economist at consultancy Deloitte India, said FDI inflows are likely to remain modest amidst expected policy changes in the U.S. and the impact of policy stimulus on China’s economy.

Geopolitical situations may alter supply chains, and trade regulations would dampen investors’ sentiments, keeping capital flows volatile, she said, adding that the government will have to prioritise infrastructure capex with timely project execution, boost workforce skilling via PPPs and incentives, invest in digital ecosystems for productivity gains, and foster R&D for digital solutions that help inclusion and formalisation of the economy.

Commenting on the data, Manav Nagaraj, Partner, Shardul Amarchand Mangaldas & Co, said FDI in India is likely to continue to rise in all areas – early-stage investments, growth capital and strategic investments.

“India as an investment destination has historically been and continues to be attractive for foreign investors across various countries, whether from the U.S., the U.K., continental Europe or Asian countries,” he added.

FDI is allowed through the automatic route in most of the sectors, while in areas like telecom, media, pharmaceuticals and insurance, government approval is required for foreign investors.

Under the government approval route, a foreign investor has to get a prior nod from the Ministry or department concerned, whereas, under the automatic route, an overseas investor is only required to inform the Reserve Bank of India (RBI) after the investment is made.

At present, FDI is prohibited in some sectors. They are lottery, gambling and betting, chit funds, Nidhi company, real estate business, and manufacturing of cigars, cheroots, cigarillos and cigarettes using tobacco.

FDI is important for India as it will require huge investments in the coming years for the infrastructure sector to boost growth. Healthy foreign inflows also help in maintaining the balance of payments and the value of the rupee.

Union Finance Minister Nirmala Sitharaman presents the Interim Budget 2024 in the Lok Sabha, at Parliament House in New Delhi on Feb. 1, 2024.
| Photo Credit: PTI

India is negotiating bilateral investment treaties with different countries with a view to promote foreign inflows, Finance Minister Nirmala Sitharaman said on February 1. She said that foreign direct investment (FDI) has doubled during 2014-23 to $596 billion compared to the inflow received during 2005-14.

“For encouraging sustained foreign investment, we are negotiating bilateral investment treaties with our foreign partners, in the spirit of ‘first develop India’,” she said while presenting the interim Budget 2024-25.

India is negotiating bilateral treaties with countries, such as the UK. These investment treaties help in promoting and protecting investments in each other’s countries. These pacts are important as India has earlier lost two international arbitration cases against British telecom giant Vodafone and Cairn Energy plc of the UK over the retrospective levy of taxes.

Align treaties with global practices

Commenting on bilateral investment treaties, economic think tank GTRI (Global Trade Research Initiative) said that India needs to align its treaties with global investment practices, address the negative perception caused by the mass treaty cancellations and reflect on its negotiation skills. New agreements should ideally resolve these concerns, it said in a statement.

GTRI said that India has cancelled 77 of its over 80 bilateral investment treaties (BIT) by 2016, as they didn’t align with its interests. “Now, it is renegotiating with 37 countries using the restrictive 2016 Model BIT, which may lead to protracted negotiations due to its narrow ‘investment’ definition, vague terms, omission of principles like ‘fair and equitable treatment’, and Most-Favoured Nation status,” GTRI co-founder Ajay Srivastava said. He added that the model BIT also demands investors seek local solutions for at least five years before arbitration, making new BITs challenging for other countries.

Foreign direct investment (FDI) equity inflows in India declined 24 per cent to USD 20.48 billion in April-September 2023, according to government data. The total FDI — which includes equity inflows, reinvested earnings and other capital — contracted 15.5 per cent to USD 32.9 billion during the period under review against USD 38.94 billion in April-June 2022.

The top investor countries include Singapore, Mauritius, the US, the UK, and the UAE. Computer software and hardware, trading, services, telecommunication, automobile, pharma and chemicals are some of the key sectors that attract FDI into India.

An official had earlier said that hardening interest rates globally and worsening geopolitical situation impacted FDI inflows into India in 2022-23.

At end-June 2023, long-term debt (with original maturity of above one year) was placed at $505.5 billion. File
| Photo Credit: K. Pichumani

India’s external debt at end-June 2023 was placed at $629.1 billion, recording an increase of $4.7 billion over its level at end-March 2023 according to data released by the Reserve Bank of India (RBI) on September 28.

The external debt to GDP ratio declined to 18.6% at end-June 2023 from 18.8% at end-March 2023, the RBI said.

Valuation effect due to the appreciation of the U.S. dollar vis-à-vis the major currencies such as yen and SDR2 amounted to $3.1 billion. Excluding the valuation effect, external debt would have increased by $7.8 billion instead of $4.7 billion at end-June 2023 over end-March 2023.

At end-June 2023, long-term debt (with original maturity of above one year) was placed at $505.5 billion, recording an increase of $9.6 billion over its level at end-March 2023.

Balance of Payments

Meanwhile, India’s current account deficit (CAD) narrowed to $9.2 billion (1.1% of GDP) in Q1:2023-24 from $17.9 billion (2.1% of GDP) in Q1:2022-23 but it was higher than $1.3 billion (0.2% of GDP) in the preceding quarter, according to the RBI’s data.

The widening of CAD on a quarter-on-quarter basis was primarily on account of a higher trade deficit coupled with a lower surplus in net services and decline in private transfer receipts.
Net services receipts decreased sequentially, primarily due to a decline in exports of computer, travel and business services, though remained higher on a year-on- year (y-o-y) basis.

Net outgo on the income account, primarily reflecting payments of investment income, declined to $10.6 billion in Q1:2023-24 from $12.6 billion in Q4:2022-23, though higher than a year ago.
In the financial account, net foreign direct investment decreased to $5.1 billion from $13.4 billion a year ago.

International Investment Position

Net claims of non-residents on India increased by $12.1 billion during Q1:2023-24 and stood at $379.7 billion as at end-June 2023.

The rise in net claims of non-residents during the quarter was on account of higher rise in foreign-owned financial assets in India ($36.2 billion) when compared with Indian residents’ overseas financial assets ($24.1 billion) according to data released by the RBI.

Increase in reserve assets ($16.6 billion) was the largest contributor to the rise in Indian residents’ foreign assets during April-June 2023, followed by direct investment, loans and trade credit.

Inward portfolio investment ($15.0 billion) and foreign direct investment ($8.9 billion) together accounted for two thirds of the rise in foreign liabilities of Indian residents.