Union Budget 2025-26 Unveils Major Financial Sector Reforms, Raises FDI Limit in Insurance to 100%

New Delhi: The Union Budget 2025-26, presented by Finance Minister Nirmala Sitharaman in Parliament today, introduced a series of transformative reforms aimed at enhancing India’s financial sector and boosting its global competitiveness over the next five years. Covering key areas such as insurance, pensions, KYC processes, corporate mergers, and Bilateral Investment Treaties (BITs), the proposed changes are expected to strengthen India’s financial ecosystem and attract sustained foreign investment.

A major highlight of the budget is the decision to raise the Foreign Direct Investment (FDI) limit in the insurance sector from 74% to 100%, with the condition that companies investing the entire premium amount within India will be eligible for this enhanced limit. The existing regulatory conditions on foreign investments in insurance will also be reviewed and simplified to encourage greater participation from global players.

In the pension sector, the government will establish a regulatory coordination forum to facilitate the development of pension products, ensuring a more streamlined and structured approach to retirement planning.

To enhance efficiency in compliance, a revamped Central KYC Registry will be rolled out in 2025, simplifying the Know Your Customer (KYC) process for businesses and individuals. The system will introduce a periodic updating mechanism, reducing the burden of repeated verifications and making financial transactions smoother.

The Budget also announced rationalization of merger requirements for companies, simplifying procedures for approvals and expanding the scope of fast-track mergers. These changes aim to accelerate corporate restructuring and improve the ease of doing business in India.

In a significant move to attract long-term foreign investments, the government will revamp the existing Bilateral Investment Treaty (BIT) model, making it more investor-friendly while maintaining India’s commitment to economic growth under the ‘First Develop India’ initiative.

These financial sector reforms reflect the government’s commitment to modernizing India’s regulatory framework, attracting foreign investment, and fostering a more dynamic and resilient economy.