The Union Budget for 2025-26, presented by the finance minister, reflects a strategic vision anchored in fiscal prudence, support for consumption, and enhancing global competitiveness via deregulations. It underscores the government’s commitment to Viksit Bharat 2047, focusing on reforms, investments, and sustainability. As the global economy grapples with uncertainties, this budget emerges as a catalyst to consolidate India’s growth trajectory, attract foreign investments, and stimulate domestic economic activities.

Empowering IFSC: A Global Financial Hub in the Making

The Budget significantly strengthens the IFSC ecosystem, reinforcing India’s ambition to emerge as a global financial powerhouse. Extending sunset dates for exemptions, deductions, and relocations to March 31, 2030, provides much-needed policy stability, enhancing investor confidence.

The specific incentives for global corporations, insurance offices, and treasury centres are well-calibrated to attract high-value international businesses.

Notably, the exemption of proceeds from life insurance policies issued by IFSC insurance intermediaries without premium limits is a game-changer, making the IFSC a competitive jurisdiction globally.

Additionally, the capital gains exemption for non-residents and IFSC units on transferring equity shares of ship-leasing companies, coupled with dividend exemptions, will catalyse the growth of niche financial services within IFSC.

The proposal to exclude intra-group loans and advances involving IFSC-based treasury entities from being classified as dividends simplifies compliance and reduces tax uncertainties. Furthermore, introducing a simplified safe harbour regime for investment funds managed by IFSC will enhance operational efficiencies and attract global asset managers.

Incentivising Long-Term Infrastructure Funding

Recognising the pivotal role of infrastructure in economic development, the budget extends the investment window for Sovereign Wealth Funds and Pension Funds by five years, up to March 31, 2030. This move ensures sustained capital flow into India’s infrastructure sector, fostering long-term growth. The alignment of these incentives with the broader National Infrastructure Pipeline (NIP) and the PM Gati Shakti framework is a strategic approach to bridging the infrastructure deficit while creating employment opportunities.

Considering the long-term funding needs for the infra sector, the proposal to set up a partial credit enhancement facility through NaBFID for the infrastructure sector is a welcome step.

Ease of Doing Business

The Union Budget 2025 reaffirms the government’s resolve to improve business efficiency. Introducing a scheme for determining the arm’s length price for transfer pricing for three years is a progressive step, providing tax certainty and reducing litigation. Expanding the scope of safe harbour rules aligns India with global best practices, making it an attractive destination for multinational corporations.

Digitalisation remains a cornerstone of governance reforms. The proposal to make all processes, including appellate orders, fully digital over the next two years will enhance transparency, reduce administrative delays, and improve taxpayer services.

Additionally, a high-level committee to review non-financial sector regulations within a year signals a proactive approach to regulatory simplification.

The two-year fixed time limit (extendable by one year) for finalising provisional assessments addresses industry concerns regarding prolonged uncertainty and high trade costs, further improving the business environment.

The announcement to set up a High-Level Committee for regulatory reforms also reflects a commitment to move towards a principle-based, light-touch regulatory framework.

Wider Credit Penetration for MSMEs: A Growth Engine

MSMEs, the backbone of India’s economy, receive a robust boost through enhanced credit guarantees. Increasing the credit guarantee cover from Rs 5 crore to ₹10 crore for Micro and Small Enterprises is expected to unlock an additional credit flow of Rs 1.5 lakh crore. For startups, raising the guarantee from Rs 10 crore to Rs 20 crore with moderated fees for key sectors under Atmanirbhar Bharat will catalyse innovation and entrepreneurship.

Expanding term loan limits to Rs 20 crore for well-performing exporter MSMEs and introducing customised credit cards for micro-enterprises underscore the budget’s inclusive financial vision. These measures will not only enhance credit accessibility but also foster competitiveness and export growth.

Fiscal Prudence Amid Growth Imperatives

Overall, the budget is forward-looking and growth-oriented. While it supports consumption and focuses on capex, it also remains committed to a firm grip on fiscal discipline, which has remained the hallmark of PM Modi’s government. The fiscal deficit is projected to decline from 4.8% in FY25 to 4.4% in FY26, signalling the government’s commitment to fiscal consolidation. This trajectory is critical for macroeconomic stability, ensuring that public debt remains sustainable.

The budget’s focus on capital expenditure, with a budgeted outlay of Rs 11.2 lakh crore for FY26, underscores the government’s belief in infrastructure-led growth. Continuing interest-free loans to states for capex incentivises sub-national development.

One of the most significant announcements is the increase in the income tax exemption limit to Rs 12 lakh under the new tax regime. This move substantially relieves the middle class and simplifies the tax structure, encouraging more individuals to opt for the new regime. Extending the time limit for filing updated returns from two to four years signals a progressive approach to fostering voluntary compliance, allowing taxpayers to rectify errors without fearing stringent penalties, thereby enhancing their financial planning.

Conclusion: A Strategic Blueprint for Viksit Bharat 2047

The Union Budget 2025-26 is a comprehensive roadmap that balances growth aspirations with fiscal prudence. Its focus on strengthening IFSC, enhancing infrastructure funding, easing business regulations, and empowering MSMEs reflects a holistic approach to economic development.

As India takes decisive strides towards becoming a $5 trillion economy, this budget lays the groundwork for sustainable, inclusive, and resilient growth. I believe that these policy measures will not only invigorate the financial ecosystem but also create new opportunities for businesses and investors alike.

The writer is MD & Group CEO, CareEdge

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