India’s cabinet Thursday approved a 49 percent Foreign Direct Investment (FDI) in insurance and opened up the pension sector to foreign capital investment, providing the much-needed momentum to the Indian economy.

In the second round of economic reforms, the government cleared amendments to raise the FDI cap in the insurance sector to 49 percent from the existing 26 percent while it approved a 26 percent FDI in the pension sector.

Amid strong opposition from some of its allies and opposition parties, the Congress-led United Progressive Alliance government ushered in big-ticket reforms like FDI in retail and aviation sectors last month. The move is seen as a desperate attempt to boost economic growth.

The move boosted investor confidence, leading to the foreign fund flow into the equity market and strengthened the volatile rupee.

Prior to the reforms, Prime Minister Manmohan Singh’s government faced criticism from investors from the world over for policy gridlocks, lackluster performance and the controversial tax laws that dampened investor confidence.

The amendment bills need to be passed in the Parliament but the House is likely to witness strong protests from various parties. The decision on these bills were deferred owing to the opposition from its former ally Trinamool Congress, which withdrew support to the Indian government after the latter went ahead with the first-round of FDI reforms.

Some analysts averred that the bills might not be passed in the winter session of the Parliament. Bibek Debroy of the Centre for Policy Research told ET Now that he was not sure whether these bills would be passed in the Parliament.

By approving 49 percent FDI in the insurance sector, the cabinet has neglected the parliament standing committee’s unanimous report against the move. However, the Insurance Regulatory and Development Authority approved the government’s move to infuse foreign capital in the sector.

"Unless we go for 49 percent, we will not have the kind of capital required to underpin the growth of insurance industry," Insurance Regulatory and Development Authority Chairman J Hari Narayana said on the sidelines of an event in Delhi.

India Foreign direct investment