[NEW DELHI] Indian lawmakers approved long-awaited legislation on Thursday to open up the country's insurance sector to foreign companies, becoming the first major economic reform act of Prime Minister Narendra Modi's business-friendly government.

The upper house of parliament - where Mr Modi and his party allies lack a majority - gave the green light to the bill, which will hike the insurance sector's foreign direct investment cap to 49 per cent from 26 per cent.

The opening of the sector is one in a series of reforms that Mr Modi hopes will revive flagging investor sentiment and pave the way for billions of dollars to flow into the industry, with India's 1.2-billion population badly under-insured.

Mr Modi's Bharatiya Janata Party (BJP) won the biggest mandate in 30 years in May on pledges to revive the economy, but the bill's passage is a rare victory as his coalition regularly faces opposition protests in the upper house which have stymied his economic agenda.

The insurance industry is a key source of funds for industrial projects.

The government has been anxious to have more foreign investment in the sector to be able to tap funds for vitally needed projects to overhaul India's creaking infrastructure.

The insurance legislation is the latest move by the government to hike foreign investment limits in a range of sectors from retail to civil aviation.

During voting late Thursday, the bill, which had been stalled for more than six years, surprisingly carried the support of the rival Congress party, whose previous government had first proposed the measure back in 2008.

The bill was passed in the lower house last week and needed the approval of the upper house to prevent a temporary insurance executive order issued in December from lapsing.

AFP