India has passed a new bill to lure in foreign investment into insurance and pensions, as a move to restore confidence in the nation’s economy.

The bill was introduced on Thursday and follows September’s big-ticket policies which included hiking diesel prices and inviting in foreign supermarkets.

The decision was aimed at fending off a cash crunch and reviving growth, which had slowed to a near three-year low.

Since the introduction of the reforms India's markets have rallied in recent weeks.

The latest moves have added to the positive sentiment and could boost interest in a forthcoming sale of shares in state-owned companies, but are yet to be passed as a law.

Sonal Varma, India economist with Nomura said: "The main thing is getting parliamentary approval for this.

“The challenging part is actually starting now, because there is a lot of opposition to FDI (foreign direct investment) in insurance and pensions".

Currently, foreign investors are barred from buying into pensions, and the cap for insurers is at 26 per cent, but the new bill would allow up to 49 per cent foreign ownership of insurance companies and in the pension sector.

Addressing press finance minister P. Chidambaram said: "The insurance regulator has categorically stated that insurance requires huge capital. It will only come if we can raise the FDI limit,"

Most of India's 24 insurance companies have been hit by restrictions on foreign holding and by regulatory changes and lost money in the past decade.

Markets responded positively in anticipation of the outcome of the cabinet meeting earlier. 

Gains triggered in financial stocks with State Bank of India and ICICI Bank, driving India's main BSE index to a 15-month high, while the NSE index hit 17-month highs.