India enacts major financial reforms to attract foreign capital

Economic Times
Economic Times
1h ago
7 views
India allows 100% foreign ownership in insurance and pensions and reforms banks and capital markets to attract foreign investment and support economic growth.
India enacts major financial reforms to attract foreign capital
A What happened
India passed a significant package of financial reforms authorizing up to 100% foreign ownership in insurance and pension sectors, previously limited to 74%. The reforms also overhaul regulations for banks and capital markets to shift savings from passive assets like gold toward equities and long-term investments. These moves aim to attract foreign capital, boost industrialization, and finance infrastructure, supporting Prime Minister Modi’s objective for developed economy status by 2047. The reforms respond to global trade challenges, including US tariffs, and have already triggered high-profile foreign investments from Japanese financial institutions. Alongside deregulation, measures include easing merger rules, enabling state banks to fund acquisitions, and cutting fees in the securities market. Despite recent foreign investor withdrawals and currency depreciation, these reforms aim to invigorate investment sentiment and deepen India’s capital markets.
★

Key insights

  • 1

    Strategic Shift Toward Deep Capital Markets: India’s reforms mark a strategic effort to mobilize long-term foreign capital by liberalizing ownership rules and encouraging investment in equities and infrastructure, addressing historic underinvestment in these areas.

  • 2

    Policy Response to Global Trade Tensions: The move to attract more foreign investment gains urgency as US tariffs threaten export sectors, prompting India to pivot towards strengthening domestic industrial capabilities and financial markets.

  • 3

    Market Consolidation and Institutional Strengthening: Regulatory easing for mergers and acquisitions and empowering state banks to fund takeovers indicates a broader government strategy to create larger, more competitive financial and industrial entities.

Takeaways

India’s recent financial reforms compose a comprehensive strategy to attract foreign capital, deepen financial markets, and sustain long-term economic growth amid a challenging global trade environment.

Topics

Business & Markets Markets Economy World & Politics Policy & Regulation