Nation growth concept, green arrows up – businessman holding map of India flag | Photo credit: NatanaelGinting
India’s long-awaited package of financial services reforms is setting the stage for a wave of foreign capital into the world’s fastest-growing major economy.
In a final step, lawmakers this week passed a law allowing insurance companies to be up to 100 percent foreign-owned, strengthening an industry long considered underpenetrated and capital-poor. Regulators have also revised rules for banks, pension funds and capital markets as they look to shift savings from idle assets such as gold and real estate to stocks, bonds and long-term investments to finance factories and infrastructure.
All these reforms come as Prime Minister Narendra Modi and his government aim to make India a developed economy by 2047, a goal that requires economic growth of about 8 percent per year, and policymakers are betting on rapid industrialization and deeper capital markets to achieve this goal.
The push to attract foreign capital has become more urgent after US President Donald Trump imposed 50 percent tariffs on Indian goods in August, among the highest in the world. The move has hampered exports to India’s largest market, potentially jeopardizing India’s manufacturing ambitions.
“The latest wave of reforms will help revive global investor sentiment amid tariff concerns,” said Pramod Kumar, CEO of Barclays Plc’s Indian division. Foreign investment flows are likely to increase, which should create more opportunities for banks like Barclays, he added.
A flurry of recent deals underlines the growing demand for Indian assets. Mizuho Financial Group Inc. agreed this week to buy a controlling interest in KKR & Co. backed investment bank Avendus Capital. Meanwhile, Mitsubishi is closing in on UFJ Financial Group Inc. an agreement to acquire a minority stake in Shriram Finance Ltd. to buy for more than $3.2 billion, Bloomberg News reported. Sumitomo Mitsui Financial Group Inc. became the largest shareholder of Yes Bank Ltd earlier this year. through a historic deal.
Overall, India recorded net foreign direct investment – typically long-term capital – of $7.6 billion between April and September, more than double the level a year earlier, according to data from the Reserve Bank of India.
The opening up of the insurance and pension sectors, new banking licenses and large investments from Japan are evidence of ‘deregulation in action’, says Vivek Ramji Iyer, partner at Grant Thornton Bharat.
This insurance measure concludes years of debate within government and industry, and demonstrates the willingness to let global players run their own insurers if they provide capital and expertise. Companies such as Allianz SE, Axa SA and Nippon Life Insurance Co. have been operating in India for years, but full ownership is expected to give companies more flexibility to scale their investments and pursue growth opportunities.
The shift also applies to the $177 billion pension fund industry, paving the way for 100% foreign ownership of companies in that space, the top pension regulator said in an interview this week. Overseas investment in both sectors was limited to 74 percent.
Bold moves
For some market participants, the reforms are the boldest since the early 2000s, when India liberalized the telecommunications and electricity sectors and rolled out budget and foreign investment guidelines.
Pension and insurance money, both domestic and foreign, tends to be patient – exactly the kind of capital needed for highways, power plants and industrial corridors. In a separate move, India’s parliament this week passed a bill that will open its nuclear industry to private companies and unlock investment opportunities worth $214 billion. Modi has also introduced tax cuts and labor law reforms to boost consumer and business spending.
Encouraging consolidation is also a central part of India’s strategy. Total transactions targeting Indian companies have risen 15 percent this year to nearly $90 billion, with Japanese buyers involved in major banking deals.
Easier rules on mergers and acquisitions, combined with a more supportive attitude from regulators, are aimed at helping Indian companies scale up. State-owned banks, still dominant lenders, are now allowed to play a more active role in financing acquisitions, giving them the opportunity to compete with their foreign counterparts.
Elsewhere, capital markets are also flourishing. Indian companies have raised a record $22 billion through IPOs so far in 2025, while the Nifty 500 Index – the broadest gauge of local equities – has delivered a total shareholder return of 122 percent over the past five years, better than the S&P 500.
To further promote trading, India’s securities market regulator this week reduced the fees domestic mutual funds pay to brokers, while also reducing basic management fees. This is one of the most dramatic changes ever to the industry’s compensation structure.
Despite the reforms, equities have underperformed global rivals this year, with the Nifty 50 Index rising just 10% as valuations appeared under pressure. Foreign investors have withdrawn some $18 billion from stock markets this year, poised to mark their biggest annual withdrawal on record. The rupee’s 5 percent decline this year, making it Asia’s worst-performing currency, is emerging as a near-term threat to a recovering stock market.
Still, the current round of reforms, along with rate cuts and relative underperformance, are making the market more attractive, said Joshua Crabb, head of Asia-Pacific equities at asset manager Robeco. “Reforms are always good, but they take time and the consequences happen with some delay,” he said.
More stories like this are available at bloomberg.com
Published on December 19, 2025
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