Union Budget 2025: What Reforms Financial Services Sector Expect?

As India prepares for the Union Budget 2025, the financial services sector is keenly anticipating reforms that will enhance growth and sustainability. The finance minister will present the budget on February 1, 2025, amid a backdrop of strong economic performance, including a 7.6% real GDP growth in 2023-24, record-high foreign exchange reserves, and a rapidly digitising economy. In this blog, let us explore various expectations of the financial services industry as mentioned in various media reports for the upcoming union budget 2025.

Accelerating Growth of IFSC GIFT City

India’s ambition to become a global financial hub hinges significantly on the development of the International Financial Services Centre (IFSC) at GIFT City in Gujarat. While the existing regulatory and tax regime has drawn increased activity, much of it remains India-focused. The sector expects the government to ramp up efforts to position IFSC GIFT City as a global financial services hub, competing with the likes of Hong Kong, Singapore, London, and Dubai. Strengthening outbound financial activities and offering global financial services will play a crucial role in achieving this objective.

Incentivising Infrastructure Investments by SWFs and FPFs

Infrastructure remains a cornerstone of India’s development agenda, especially with the vision of achieving ‘Viksit Bharat’ by 2047. To attract stable, long-term foreign investments into infrastructure projects, industry experts are seeking rationalisation of the income tax regime, particularly under Section 10(23FE). Additionally, there is a call for extending the sunset clause for new infrastructure investments beyond March 2025 by at least 3 years. 

Moreover, it is expected that any payment made to a notified Sovereign Wealth Funds (SWF) or Foreign Pension Funds (FPF), which is exempt from tax in their hands, should also be exempt from Indian withholding tax provisions. These steps would help attract more foreign capital into critical infrastructure development.

Diversification of India’s Financial Services Sector

India’s robust macroeconomic fundamentals have positioned the country as a strong player on the global financial stage. However, to capitalize on this, India’s financial services sector needs to diversify and expand internationally. One of the key focus areas is the Indian mutual funds industry. As the domestic market continues to grow, there is increasing emphasis on creating a favourable environment that allows Indian mutual funds to tap into global markets. This would provide a strategic opportunity to broaden India’s financial services sector and increase its global footprint.

Conclusion

The Union Budget 2025 is poised to shape the trajectory of India’s financial services sector for years to come. Accelerating the growth of IFSC GIFT City, incentivizing foreign investments in infrastructure, and supporting the diversification of India’s financial services are critical reforms that the sector hopes to see. As India aims for ‘Viksit Bharat’ by 2047, the financial services industry will be central to driving the country’s economic transformation.

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