The Union Budget for 2025-26, introduced by Finance Minister Nirmala Sitharaman, brings about significant reforms across six key areas aimed at boosting India’s growth potential and enhancing its competitiveness on the global stage over the next five years. In the Financial Sector, there are major reforms focusing on Insurance, Pensions, Bilateral Investment Treaties (BITs), KYC simplification, and corporate mergers.
The insurance sector from 74% to 100%, which aims to attract foreign investment, improve market penetration, and integrate global best practices. Additional important changes include reforms in the development of pension products, simplification of KYC processes, facilitation of company mergers, and an overhaul of BITs to promote ongoing foreign investment.
Key Highlights of Financial Sector Reforms in Budget 2025-26
1. 100% FDI in the Insurance Sector
- FDI limit increased from 74% to 100% for companies investing entire premiums within India.
- The current conditions and regulatory guardrails on foreign investment will be simplified.
- This move is expected to attract global insurance giants, bringing in significant foreign capital.
- It aims to deepen market penetration, foster competition, and introduce global best practices.
2. Pension Sector Reforms
- A forum for regulatory coordination will be set up to develop pension products.
- The move aims to enhance the pension ecosystem and encourage more private sector participation.
3. KYC Simplification
- A revamped Central KYC Registry will be rolled out in 2025.
- The new system will streamline periodic updates, making compliance easier.
4. Simplified Company Merger Process
- Requirements and procedures for mergers will be rationalized to speed up approvals.
- The scope of fast-track mergers will be expanded, making the process more efficient.
5. Revamping Bilateral Investment Treaties (BITs)
- The current BIT model will be revised to make it more investor-friendly.
- This is in line with the ‘First Develop India’ (FDI) strategy, ensuring that foreign investments contribute to India’s growth.
Impact of 100% FDI in Insurance
- Since 2000, the FDI limit in insurance has increased from 26% to 74%, and now to 100%.
- The insurance industry has grown from 7 state-owned entities to over 60 companies today.
- The announcement has attracted interest from global insurers, expecting higher foreign investment.
- Market leaders believe this reform will enhance capital inflows, foster competition, and improve customer service.
