Continuing to display its commitment to economic reforms, the Union Cabinet on Thursday raised foreign direct investment (FDI) cap in insurance sector and opened up the pension sector to foreign investors.

The Cabinet gave a nod to hike the FDI cap in the insurance sector from existing 26 per cent to 49 per cent, and also foreign investors to own up to 26 per cent in pension funds.

The Cabinet also gave nod to the Companies Bill. Stressing on the need for new Companies Bill, Finance Minister P Chidambaram said that the existing bill was outdated.

The new measures were welcomed by insurance companies and Planning Commission Deputy Chairman Montek Singh Ahluwalia among others. Ahluwalia said that the new measures would provide a further improve the investment climate of India.

Adi Godrej, President of Confederation of Indian Industry (CII), said, "I am glad that we are increasing FDI in insurance and that we are bringing in FDI in pension plans. Opening up FDI will provide long-term investment."

Vibha Padalkar, CFO at HDFC Life, said that the announced measures would definitely create a lot of enthusiasm amongst the foreign investors.

In September, the government at the centre had approved plan to allow 51 per cent FDI in multi-brand retail, and opened civil aviation and sections of broadcasting sector to overseas companies.