Budget 2025 presents a robust framework for the financial services industry. (AI image)
By Pratik Shah and Keyur Shah
In the midst of a complex global landscape, the Union
Budget 2025
strikes a balance between fiscal prudence, boosting consumption, and spurring investments, presenting a wealth of opportunities for the financial services sector. The government's measures are set to unlock growth and innovation across key areas of the industry.
Tax reforms and consumption boost
One of the most notable announcements is the increase in the income tax exemption limit, which is expected to enhance purchasing power among consumers and, in turn, stimulate domestic consumption. The establishment of the SWAMIH Fund II, with a blended finance facility of INR 15,000 crore, will provide a significant fillip to stressed housing projects, adding another one lakh housing units. This initiative aims to address the long-standing issue of stalled housing projects and provide a much-needed boost to the real estate sector.
Asset monetization and infrastructure financing
Building on the success of the
Asset Monetization Plan
from 2021, the government has announced a second plan for 2025-30, aiming to channel INR 10 lakh crore into new infrastructure projects. This initiative will optimize regulatory and fiscal policies to unlock substantial capital, paving the way for significant growth in infrastructure development. The introduction of partial credit enhancement for infrastructure-focused corporate bonds, under the guidance of NABFID, will provide much-needed depth and liquidity to the bond market, lowering borrowing costs for infrastructure companies.
Insurance sector revolutionized
The approval of 100% Foreign Direct Investment (FDI) in the insurance sector is a game changer. This move is poised to attract global players, foster innovation, and expand insurance penetration in India. However, the Finance Minister clarified that this will be subject to certain conditionalities, particularly ensuring that the insurance company does not invest its premiums outside India. While this is a welcome step for attracting global investment, careful consideration of these conditions will be crucial to maximize the impact on the sector.
Changes to GIFT city’s tax reforms
On the direct tax front, the announcement of a new income tax act, to be tabled next week, didn’t bring many expected changes. However, some important changes have been made for the GIFT City. These changes can be divided into time extensions and substantive amendments. Among the key amendments, non-resident income from the transfer of, or subscription to, non-deliverable forwards, offshore derivative instruments, or over-the-counter derivatives issued by any unit in the IFSCA zone is now exempt from tax. Previously, this was limited to instruments issued by banks. This change is expected to encourage large broker-dealers, who typically issue such instruments, to set up operations in GIFT City.
Additionally, the definition of ‘dividend’ for treasury centers has been amended, reducing tax barriers for corporate treasury activities. This will further encourage treasury centers to set up operations in GIFT City. However, a condition has been added requiring that the entity in GIFT should be part of a group with a parent listed in an overseas country. It is suggested that this benefit should also be extended to Indian-listed companies.
The exemption for life insurance policies issued by IFSC insurance intermediaries will also remove premium limits for non-residents, boosting GIFT City’s attractiveness for global insurance players, which has already seen a rise in international insurance companies establishing a presence there.
Digital infrastructure and financial services innovation
The push for digital infrastructure in financial services will be a significant game changer. The establishment of a central KYC registry will reduce customer acquisition costs, improving efficiency in the onboarding process. Additionally, the streamlining of trade documentation through the Bharat Trade Network, part of India Stack 2.0, is set to foster paperless, efficient global trade. This will contribute to India’s goal of achieving USD 2 trillion in exports by 2030, complementing the growth of digital platforms like ONDC and UPI.
Revolutionizing rural credit access
The introduction of the Grameen Credit Score has the potential to revolutionize rural credit access. If implemented effectively, it could significantly enhance financial inclusion in rural areas, reduce borrowing costs, and improve the management of non-performing assets (NPAs). This initiative could be pivotal in expanding credit access to underserved populations, fostering economic growth in rural India.
MSME and startup support
The financial services sector stands to benefit greatly from the enhanced credit guarantee for MSMEs and startups. Increased investment and turnover limits for MSMEs will create new avenues for financial products and services. The focus on the “Make in India” initiative will enable financial services companies to tailor their products, digital lending solutions, and credit programs to meet the growing demand in these sectors.
Conclusion
In conclusion, Budget 2025 presents a robust framework for the financial services industry, underscoring the government’s commitment to driving growth, innovation, and inclusion. From boosting consumption and housing demand to transforming rural credit access and supporting MSMEs, the budget offers opportunities across a spectrum of financial services. As the sector adapts to these changes, India’s financial landscape is poised for growth, making this budget a Triveni Sangam for the industry’s evolution.
(Pratik Shah is National Leader - Financial Services, EY India and Keyur Shah is Financial Services Tax Leader, EY India)
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