India has rolled out a sweeping set of financial sector reforms aimed at attracting large volumes of foreign capital to support the country’s ambitious
growth plans. This week, Parliament cleared a bill allowing 100% foreign ownership in insurance companies, opening up a sector long viewed as underpenetrated and capital-starved. Regulators have also eased rules across banking, pensions and capital markets, seeking to shift household savings away from gold and real estate and into equities, bonds and long-term investments such as manufacturing and infrastructure. The reforms align with Prime Minister Narendra Modi’s goal of making India a developed economy by 2047, a target that would require sustained annual growth of around 8%. Policymakers are betting on rapid industrialisation and deeper capital markets to deliver that pace. The push for overseas capital has gained urgency after US President Donald Trump imposed 50% tariffs on Indian goods in August, among the steepest applied globally. The move threatens exports to India’s largest market and could complicate manufacturing-led growth plans. “These fresh reforms should lift global investor sentiment despite the tariff headwinds,” said Pramod Kumar, CEO of Barclays India, adding that stronger inflows would also create new opportunities for lenders. Deal activity is already accelerating. Japan’s Mizuho has agreed to acquire control of KKR-backed Avendus Capital, while Mitsubishi UFJ Financial Group is nearing a deal to buy a minority stake worth more than $3.2 billion in Shriram Finance. Sumitomo Mitsui Banking Corporation earlier this year emerged as the largest shareholder in Yes Bank. Net foreign direct investment, typically seen as more stable long-term capital, rose to $7.6 billion between April and September, more than double the level a year earlier, according to Reserve Bank of India data. Full foreign ownership has now been extended to the $177 billion pension sector, up from a previous cap of 74%, the sector’s top regulator confirmed this week. For many observers, the latest measures mark the most ambitious liberalisation drive since the early-2000s opening of telecom and power. Patient capital from insurance and pension funds is viewed as a natural fit for highways, factories and industrial corridors. Parliament has also cleared the entry of private players into nuclear power, unlocking investment opportunities estimated at $214 billion. The government has paired these moves with tax cuts and labour reforms to spur spending. Consolidation is also picking up pace. M&A activity involving Indian companies has risen 15% this year to nearly $90 billion, with Japanese firms particularly active in the financial sector. Easier merger rules and a more supportive regulatory stance have helped domestic firms scale up, while state-run banks are playing a larger role in financing acquisitions. Capital markets remain buoyant. Companies raised a record $22 billion through IPOs this year, and the Nifty 500 index has returned 122% over five years, outperforming the S&P 500. Regulators have recently cut mutual fund fees and brokerage charges in a broad market overhaul. However, Indian equities have lagged global peers in 2025, with the Nifty 50 up about 10%, weighed down by rich valuations. Foreign investors have pulled out nearly $18 billion from equities, putting the market on track for its largest annual outflow on record. The rupee’s 5% fall has also made it Asia’s weakest-performing currency this year. Even so, investors see renewed appeal. “Reforms help, though their impact takes time,” said Joshua Crabb of Robeco, pointing to lower valuations, policy support and expected rate cuts. Taken together, the latest measures underline India’s bid to deepen its financial markets and secure long-term capital as global trade dynamics shift and growth ambitions rise.
