Union Budget 2025: Highlights Of Proposed Reforms Introduced By FM Nirmala Sitharaman

Union Budget 2025: Highlights Of Proposed Reforms Introduced By FM Nirmala Sitharaman

Strap – These include raising the Foreign Direct Investment limits to foster economic growth and competitiveness

In a bid to create a business-friendly environment, Finance Minister Nirmala Sitharaman has proposed numerous regulatory reforms and initiatives across various sectors, including insurance, agriculture, and startups, in Union Budget 2025.

The key measures include raising the Foreign Direct Investment (FDI) limit, boosting the Micro, Small and Medium Enterprises (MSME) credit access, and enhancing infrastructure financing to foster economic growth and competitiveness.

To foster an investment-friendly environment and encourage a trust-based regulatory framework, the government has decided to review the existing regulators and create a principle-based framework. This will ease the complexity, avoid multiple amendments and enable flexibility to keep up with the technological developments.

To highlight the significance of the endeavor, a high-level committee will be formed to review the non-financial sector regulations, certificates, and licenses. The committee will recommend trust-based economic governance and streamline compliance and inspection processes. It will create a conducive environment for business operations.

The increase limit on the Tax Collected at Source (TCS) applicability from Rs.7 lakh to Rs.10 lakh is unlikely to affect, as in the Liberalised Remittance Scheme (LRS) limit of USD 2,50,000, the increase is less than 1.5 percent.

Financial sector

To fulfill the nation’s needs, the budgets of the past decade recognized the need for a strong financial sector.

Thus, under the Insurance Laws (Amendment) Bills, 2024, the government has raised the FDI limit in the insurance sector from 74 percent to 100 percent. This would give impetus to key investors to invest, making the sector competitive and comparable to global contenders.

Agriculture

To allow greater produce and create employment, the FM announced reforms in the agriculture sector including the Dhan Dhanya Krishi Yojna, high-yield seed varieties, and crop diversification. It would help farmers achieve self-sufficiency and reduce migration. The move will allow higher export of produce outside India, boost cross-border trade and limit migration to metropolitan cities.

In keeping with the approach in the two budgets, Sitharaman has focused on the Indian startups to innovate through technology and better access to capital investment.

The government has established a new fund with an expanded scope and a fresh contribution of Rs.10,000 crore. These funds would receive a commitment of over Rs.9 lakh crore.

With the majority of youth tilting to the startup India, it is a step closer to Viksit Bharat.

Make in India

The finance minister informed the Parliament about a new manufacturing initiative under the Make in India campaign. It would provide extensive policy support and a structured framework to assist small, medium, and large-scale industries.

The mission is to establish an ecosystem for solar photovoltaic (PV) cells, electrolyzers, and grid-scale batteries. This will boost domestic manufacturing, create jobs, drive technological advancements, promote sustainability, enhance competitiveness, attract foreign investment, develop infrastructure, and improve energy security in the country.

Seafood Industry

The budget proposed a scheme to enhance the seafood industry and boost fisheries exports in exclusive economic zones and the high seas, especially the Andaman & Nicobar Islands.

As one of the largest seafood exporters globally, the Indian economy will benefit from the supportive policies. This will strengthen the sector and facilitate cross-border trade.

Other schemes

The PM Swanidhi Scheme will be revamped with higher loan limits and introduce a Rs.30,000 UPI-linked credit card.

The government will also facilitate identity card issuance and registration on the e-Shram portal for gig workers, providing insurance coverage to over 1 crore workers.

The initiative will promote financial digital technology and make India a fin-tech hub.

Another major announcement by the finance minister was to enhance trade finance. The introduction of cross-border factoring would enable Indian exporters to access liquidity by entering arrangements with foreign financiers. It will help them comply with the export directions of the Reserve Bank of India (RBI), which requires repatriation of export proceeds within nine months.

Promote export

To provide export credit and implement non-tariff measures, the finance minister announced the ‘Promote Export’ mission.

Under the exercise, cargo screening and customs clearance processes will be made user-friendly to support businesses. It includes establishing an international trade uniform platform to align trade documentation with global standards.

The measures will streamline regulatory processes, and reduce barriers in international trade, boost exports and contribute to the country’s economic growth.

KYC changes

The Finance Minister's announcement on the implementation of the revamped Central Know Your Customer (CKYC) registry has been especially lauded by the market players in the Banking, Financial Services and Insurance (BFSI) segment.

Until now, KYC compliance has been seen as a huge burden by the industry. However, a streamlined system for periodic updating will spur the growth of the financial ecosystem. It would also reduce the time and costs incurred for customer onboarding. This can also potentially reduce customer dropouts during a digital onboarding process adopted by financial service providers.

MSME credit

The proposed changes in the classification criteria for MSMEs and enhancement of credit guarantee cover provided under various guaranteed schemes demonstrate the government's ongoing commitment to further develop and grow the segment.

Improving these points will increase their contribution to the economy and result in a net positive impact on social and economic development.

Financial Stability and Development Council

Experts have appreciated the government’s proposal to create an evaluation mechanism under the Financial Stability and Development Council (FSDC). This will ascertain the impact of financial regulations on the ecosystem.

(The FSDC is an apex body comprising representatives from all financial sector regulators and the government).

With the advent of self-regulatory organizations (SROs), it is hoped that the dialogue and collaboration with the industry will create a path for the financial environment.

Alternative Investment Fund

The Finance Bill is set to end the controversy around the characterization of income earned by Category I/II Alternative Investment Fund (AIF) as 'capital gain' vs 'business income'.

Henceforth, the income arising on transfer of shares and securities will be treated as capital gain which will be exempt from tax for the AIF. On a pass-through basis, it will be taxed directly in the hands of the investors.

Aligning with the government’s initiative to raise an investment-friendly environment and encourage a trust-based regulatory framework, the finance ministry has proposed to review the existing regulators and create a principle-based framework.

This will ease the complexity, avoid multiple amendments, and enable flexibility to keep up with technological developments.

To give a fillip to this endeavor, a high-level committee will be formed to review the non-financial sector regulations, certificates, and licenses. The committee will provide trust-based economic governance and streamline compliance and inspection processes, creating a more conducive environment for business operations.

Special Window for Affordable and Mid-Income Housing

Building on the success of Special Window for Affordable and Mid-Income Housing (SWAMIH) Fund-I in delivering over 50,000 houses until 2024 (through the extension of priority debt funding to stressed housing projects), Sitharaman announced the second fund with an expected investment of Rs.15,000 crores.

It will blend debt facility to stalled real estate projects across the country and aid in the completion and delivery of over 100,000 apartments.

The funding will go a long way in arresting the erosion of the investment made in these projects by the existing lenders and the homebuyers. It will help viable investment participation prospects for private investors along with the government. The investment could be provided priority treatment like Fund I, in case of insolvency of the relevant real estate special purpose vehicles (SPV) under the Insolvency and Bankruptcy Code (IBC) regime.

FDI in insurance sector up by 25 percent

Among a slew of benefits, the government announced an increase of FDI to 100 percent in the insurance sector.

This is seen as a very positive step to usher in greenfield investment from marquee foreign insurance firms not yet present in India. It will also see existing foreign insurance players buy out their Indian joint venture partners and private equity players keen to monetize their stake.

In recent years, the Insurance Regulatory and Development Authority of India (IRDAI) has introduced several all-round regulatory changes to boost market penetration. Thus, the insurance sector will soon yield the benefits of those initiatives.

Credit access

Among the several announcements in the Union Budget 2025, providing enhanced credit access for the infrastructure sector, through the National Bank for Financing Infrastructure and Development (NaBFID) indicates continued government focus on credit initiatives.

This will play a crucial role in reviving and providing impetus to long-term infrastructure financing, including the development of bonds and derivatives markets to augment infrastructure growth.

In addition to this, NaBFID will now act as a market maker to ensure liquidity in the bond market and provide innovative credit enhancement solutions.

With an emphasis on sustainable finance, NaBFID is poised to contribute significantly to climate-resilient infrastructure development. This move will boost project financing and promote India’s economic growth.

Global Capability Centres

Sitharaman’s proposal to introduce a national guidance framework for Global Capability Centres (GCCs), especially for the emerging Tier 2 cities, is a positive signal. The initiative comes at an opportune time when is India experiencing a significant surge in the GCC market.

It focuses on upskilling through the establishment of Centres of Excellence. The government has acknowledged the significance of the centres in the country’s growth story. This is an encouraging move for keeping India at the forefront of innovation.