India's latest budget marks a decisive shift in foreign investment policy by allowing 100 percent overseas ownership in insurance while disappointing infrastructure investors with minimal capital expenditure growth. 

The Union Budget for 2025-26, presented on Feb. 1, projects a fiscal deficit reduction to 4.4 percent from there previous 4.8 percent. It also introduces a 100-billion-rupee ($1.15 billion) fund of funds for start-ups focussing on deep-tech, artificial intelligence (AI), and technology, signalling the government's push toward regulatory reforms amid global economic headwinds.

Additionally, the budget promotes foreign investments through extended incentives for sovereign wealth funds and enhances the regulatory framework to facilitate ease of doing business. Investments in green technologies and the development of GIFT City are prioritised to position India as a competitive hub in the global economy.

"The budget signals India's intent to chart its own course, embracing regulatory reform while strengthening global competitiveness," says Cyril Shroff, managing partner at Cyril Amarchand Mangaldas. "This agenda is a transformative step forward, and if executed effectively, it can solidify India as a steady global business hub in the face of geopolitical uncertainty." 

The budget maintains existing corporate tax structures, with domestic rates remaining unchanged and foreign companies continuing to be taxed at 35 percent. However, it introduces substantial tax relief for the middle-class tax, exempting individuals earning up to 1.2 million rupees ($13,800) annually – who constitute 90 percent of the country. 

"The Finance Bill 2025 proposals mark a directional shift towards a growth strategy based on consumption rather than government-led capital expenditure," notes Himanshu Sinha, partner and head of tax practice at Trilegal. He adds that the personal tax reductions could "jumpstart discretionary spending in sectors like automobiles, FMCG, travel and tourism, quick commerce and affordable housing. One can expect increased investments and M&A in these sectors by large MNCs and funds.” 

For foreign investors, the budget outlines reforms to bilateral investment treaties and extends incentives for sovereign wealth funds until March 2030. A significant policy shift allows 100 percent foreign direct investment in insurance, with domestic reinvestment conditions.

"This move is expected to attract much-needed capital into the sector and enhance insurance penetration," says Aravind Venugopal, partner at Khaitan & Co. "However, clarity on operational guidelines—particularly regarding the requirement that the entire premium must be invested in India—is crucial."

Infrastructure development received mixed attention, with capital expenditure increasing by less than 1 percent year-over-year. However, the budget also introduced the SWAMIH Fund 2 to support stalled housing projects and continued support for the Gati Shakti logistics initiative.

"The partial credit enhancement scheme for infra will make investments and bankability of these projects easier to achieve and in the long run make them more cost-efficient for the country," notes CAM senior partner Santosh Janakiram.

The budget provided increased relief to startups, which already account for 45 percent of the country’s exports. The new fund of funds is expected to focus on deep-tech innovation, with artificial intelligence identified as a key growth driver. Tax holidays for startups have been extended, and the fast-track merger process has been widened, simplifying business reorganisations. The budget also proposes regulatory simplifications, such as a streamlined tax compliance process, to facilitate ease of business operations.

Startups also received increased relief, as they account for 45 percent of the country's exports. The new fund of funds will focus on deep tech innovation, with artificial intelligence identified as a major growth driver. Tax holidays for startups have been extended, and the fast-track merger process has been expanded, simplifying business reorganisations. The budget includes regulatory simplifications, such as a streamlined tax compliance process, aimed at facilitating ease of business operations.

"The proposed increase in the efficiency and scope for fast-track mergers is a welcome move," says Kunal Arora, partner at Lakshmikumaran & Sridharan Attorneys, adding it will provide "a faster, certain and a more efficient process for a large number of Indian companies to restructure their businesses."

However, the healthcare sector, primed for a strong year of consolidation and private equity-backed dealmaking, given increasing consumer spending trends, saw no reform or budgetary support, leaving investors disappointed. 

The regulatory framework saw some reform, including the decriminalisation of over 100 statutory provisions, which may reduce compliance burdens for businesses. “Such measures will no doubt be a great relief to India Inc. and will only serve to ensure that organisations are not faced with the threat of criminal actions purely by dint of them carrying out their businesses,” notes Shaneen Parikh, head of CAM’s international arbitration practice. 

The introduction of the Bharat Trade Net platform aims to optimise international trade processes, enhancing competitiveness. A high-level committee will assess and recommend annual changes to non-financial sector regulations, ensuring a dynamic and responsive business environment.

“The revamped Central KYC system will streamline compliance and improve financial transparency. It will ensure reduction of duplication and unified repository of customer information. The purpose is to bring down money laundering and ease the business for financial institutions,” says Alay Razvi, managing partner at Accord Juris.