Union Budget 2025 Highlights: Policy Continuity and Regulatory Reforms

Rupees and paise

Finance Minister Nirmala Sitharaman, on 1 February presented the Union Budget for the 2025-2026 financial year (“Union Budget”). We have set out below the key proposals that would be relevant for investors and businesses. At this stage, the budget presents high level proposals and details are expected in the future.

1. Infrastructure

In line with the government’s continuing push on infrastructure, USD 130 billion (approx.) have been allocated for infrastructure development. This includes:

  • USD 10 billion in interest-free loans for state governments for capital expenditure and incentives for reforms.
  • Creation of a USD 10 billion Urban Challenge Fund for development and redevelopment of city infrastructure (including provision of clean water and sanitation). The fund will finance up to 25% of the cost of bankable projects provided at lease 50% of the cost is funded from banks loans, bonds and public-private-partnerships (“PPP”).
  • A greenfield airport will be developed in Patna, Bihar with capacity expansion in certain other airports in the state. In addition, the government will expand the UDAN regional connectivity scheme to cover 120 new destinations.[1]
  • Infrastructure-related ministries to develop a 3-year pipeline of projects in PPP mode for infrastructure development in India. Similarly, states will be encouraged to develop similar pipeline of projects that can be undertaken on the PPP model.
  • Central government to raise approximately USD 110 billion during the 2025-2030 period under a second asset monetisation plan. The central government previously raised approximately USD 50 billion by selling government enterprises and assets to private investors under the first asset monetisation plan between 2022-2025 (this included the much publicised sale of Air India to the Tata Group).
  • Private sector entities will be given access to data on the ‘PM Gati Shakti’ portal. As context, the PM GatiShakti portal provides for a consolidated database for ongoing and future infrastructure projects.
  • National Bank for Financing Infrastructure and Development (NaBFID) will introduce a Partial Credit Enhancement Facility (PCEF) to support infrastructure projects by reducing borrowing costs for developers.

2. Maritime

India’s shipbuilding industry is projected to reach USD 8 billion by 2033, supported by planned investments of USD 82 billion in port infrastructure projects by 2035 to strengthen the maritime sector. The proposals for the sector are:

  • Creation of a Maritime Development Fund of approximately USD 2.8 billion to provide for long term financing for the maritime industry out of which 51% will be raised from the ports and private sector.
  • The central government also proposes to designate large ships above a specified size will be included in the infrastructure harmonized master list (HML).[2]
  • The central government will extend a 10-year customs duty exemption on shipbuilding inputs and provides certain tax incentives for the ship breaking industry.

3. Healthcare

The healthcare industry is expected to reach over USD 610 billion by 2026. In this context, the following proposals have been made:

  • Establishment of cancer day-care centres in all district level hospitals within a period of 3 years.
  • Basic custom exemption on 36 life-saving drugs, 5% custom duty reduction on 6 other drugs, and creation of 13 patient assistance programs to help people receive medication even without health-insurance.
  • The central government to simplify visa procedures for medical tourism in India. This is following the launch of the ‘Heal in India’ initiative in 2023 for promotion of medical tourism in India.

4. Tourism

India’s tourism and hospitality sector is expected to yield revenue exceeding USD 59 billion by 2028. Moreover, Foreign Tourist Arrivals (FTAs) are forecasted to hit 30.5 million by the same year. The following proposals have been made for the sector:

  • Developing 50 top tourist destinations in partnership with states, ensuring world-class facilities and connectivity.
  • State government will be required to provide land for critical infrastructure, including hotels, which will be classified as infrastructure under the HML to attract investments and boost hospitality services.
  • Medical Tourism to also be promoted in partnership with the private sector along with capacity building and easier visa norms (see healthcare above).
  • There will be a focus on religious tourism sites including those relating to the life and times of Lord Buddha.

5. Innovation

  • Creation of a Deep Tech Fund ofFunds to spearhead the next generation of startups in India.
  • The central government also plans to launch BharatTradeNet (BTN), a platform to digitise the entire trade documentation and compliance process.
  • The central government plans to create a national geospatial mission to bolster India’s digital infrastructure by granting the private sector access to critical data and maps.
  • Broadband connectivity will also be expanded in India to government secondary schools and primary health centres in rural areas.
  • The central government has proposed extending the deadline for availing tax benefits[3] for startups recognised by the Department for Promotion of Industry and Internal Trade (DPIIT) until March 31, 2030.
  • The central government has facilitated commitments of USD 11 billion (approx.) for Alternate Investment Funds (AIF’s) supporting startups in India. These funds are backed by the Fund of Funds, which was established with a government contribution of USD 1.1 billion. Building on this initiative, the government will now set up a new Fund of Funds with an expanded scope and an additional contribution of USD 1.1 billion.
  • The central government has also proposed to set up a National Manufacturing Mission covering small, medium and large industries for furthering “Make in India” by providing policy support, execution roadmaps, governance and monitoring framework for central ministries and states.
  • The central government has proposed to develop a national framework to guide states in promoting Global Capability Centres in emerging Tier-2 cities in India. This framework will recommend measures to improve talent availability, enhance infrastructure, implement building by-law reforms, and establish mechanisms for industry collaboration.

6. Nuclear Power

India’s nuclear power generation capacity has grown significantly, nearly doubling from 4,780 MW in 2014 to 8,180 MW in 2024, and the capacity is projected to triple to 22,480 MW by 2031-2032. In this context:

  • The central government is looking at developing at least 100 GW of nuclear energy by 2047 as part of its energy transition efforts.
  • To that end the central government has allocated USD 2.2 billion to launch a Nuclear Energy Missionto drive research and development in Small Modular Reactors (SMRs) in India. Small Modular Reactors (SMRs) are more compact and flexible than traditional nuclear plants.
  • The central government also plans to amend the Atomic Energy Act, and Civil Liability under the Nuclear Damage Act to allow more private sector involvement in nuclear energy production. The specific amendment proposal is yet to be made public.

7. Financial Services

  • The central government is raising the limit for Foreign Direct Investment (FDI) in the insurance sector from 74% to 100%. This enhanced limit will be available for those companies which invest the entire premium in India. The central government plans to review and simplify conditionalities associated with FDI in India.
  • National Bank for Financing Infrastructure and Development (NaBFID) will set up a ‘Partial Credit Enhancement Facility’ for corporate bonds for infrastructure.
  • Under the Financial Stability and Development Council, the central government will develop a mechanism to evaluate the impact of the current financial regulations and subsidiary instructions. It will also formulate a framework to enhance their responsiveness and development of the financial sector.

8. International Financial Services Centre

The central government has proposed multiple tax incentives and regulatory relaxations for global industries include financial services, asset management, insurance, aircraft and ship leasing, and capital markets, operating in IFSC (a special economic zone for financial services), including exemptions on deemed dividends, offshore derivative income, and ship leasing, along with an extended sunset date for tax concessions.

9. Other Regulatory Reforms

  • The central government has announced that it is setting up a High-Level Committee for Regulatory Reforms to review regulations, certifications, licenses, and permissions across various sectors.
  • The central government is launching an Investment Friendliness Index to encourage states to improve their business climate.
  • The central government plans to rationalise requirements and procedures for speedy approval of company mergers by widening the scope for fast-track mergers and simplifying the process. 
  • Proposal to develop a new model Bilateral Investment Treaties(BIT) to make them more investor friendly.
  • Introducing a new Jan Vishwas Bill to decriminalise more than 100 provisions in various laws. Previously, the central government, under the Jan Vishwas Act 2023, decriminalised over 180 offences.

10. Conclusion

  • The Union Budget 2025 reflects the central government’s focus on policy continuity and its commitment to positioning India as a stable investment environment.
  • India continues to advance regulatory reforms, and in this regard, the High-Level Committee on Regulatory Reforms can play a key role in simplifying regulations across sectors, thereby enhancing the ease of doing business.
  • The central government has identified priority areas, opening new avenues and opportunities for foreign investors to do business in India through public-private partnerships in infrastructure development, and maritime development.
  • Proposed tax exemptions and benefits for the middle-income demographic are expected to drive increased consumption.

1 Regional Connectivity Scheme (RCS)-UDAN (Ude Desh ka Aam Nagrik) was conceived by the Ministry of Civil Aviation (MoCA) to promote regional air connectivity by making flying affordable for the common citizen. The central idea of the scheme is to encourage airlines to operate flights on regional and remote routes through enabling policies and extending incentives.

2 The inclusion of a sector in the Harmonized Master List (HML) facilitates access to infrastructure lending on more favourable terms, including enhanced borrowing limits, larger allocations of External Commercial Borrowings (ECB), and longer-tenor funding from insurance companies and pension funds. Additionally, it enables eligibility for financing from institutions such as the India Infrastructure Financing Company Limited (IIFCL), thereby improving the sector’s access to long-term capital.

3 Eligible startups are able to claim a 100% tax deduction on profits and gains derived from such business for three consecutive assessment years.