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The government has consistently emphasised the importance of foreign direct investment (FDI) in propelling economic development and expanding India’s global significance. A milestone in this regard was achieved in December 2024, when gross FDI inflows, since April 2000, surpassed the USD1 trillion mark. The exponential growth of India’s ranking in most indices relating to FDI parallels the government’s efforts towards increasing the ease of doing business (EoDB) and attracting foreign investors to the country. Global financial advisers have lauded the efforts taken by the Indian government towards liberalisation of the FDI framework. In a recent report, Deloitte commended the promotion of FDI in many sectors through the automatic route. The firm labelled certain sectors, including pharmaceuticals, automobiles and tourism, not only as FDI magnets but also crucial drivers of exports, innovation and employment generation.
Smruti Shah
Partner
Cyril Amarchand
Mangaldas
The 2025-26 budget introduced three key FDI developments. The first is an increase in the FDI cap for investment in the insurance sector through the automatic route from 74% to 100%. Major global law firms hailed this development as a welcome change. This is because India has lagged in insurance penetration despite being one of the fastest-growing insurance markets in the world. Specific guidelines are awaited following consultations with the Insurance Regulatory and Development Authority of India. At the same time, certain conditions, such as requiring the re-investment of the entire premium in India, may be imposed to limit the repatriation of the investments in the sector. This change is likely to have a significant effect in the insurance industry, which has already attracted a total of INR828.5 trillion (USD9.7 billion) worth of FDI since the sector was opened to foreign investment in 2000.
Second, the government is set to launch an Investment Friendliness Index of States to foster healthy competition between individual states and promote co-operative federalism. This move complements existing initiatives such as the Business Reforms Action Plan 2024 and the Logistics Ease Across Different States 2024 that help potential investors understand the business ecosystems and logistical efficiencies of various states and union territories.
Sparsh Khosla
Associate
Cyril Amarchand
Mangaldas
Third, to build on the success of the Jan Vishwas (Amendment of Provisions) Act, 2023, which decriminalised several provisions in central acts to improve the EoDB, the government plans to introduce a Jan Vishwas 2.0 bill to further streamline the business environment. In addition, the budget announced the formation of a high-level committee for regulatory reforms to strengthen trust-based economic governance and to implement more measures to enhance the EoDB.
In a landmark move to bolster bilateral trade and investment, India recently signed a free-trade agreement (FTA) with the UK. India has committed to put non-tariff provisions in place to ensure the free flow of goods and services between the UK and India. India will benefit significantly from duty exemptions for almost 99% of its exports. India has also brokered multiple exemptions for its professionals working or planning to work in the UK. Bilateral trade between India and the UK, which at present stands at USD60 billion, is expected to double by 2030 under the liberalised framework of the FTA. The FTA with the UK, as well as other recently concluded international agreements, such as the India-UAE Bilateral Investment Treaty, 2024, are designed to instil confidence in foreign investors. They also build mutually beneficial frameworks for India and its trading partners.
Such developments in India’s FDI landscape during the first half of 2025 signal a continued and concerted effort by the government to attract foreign investment and to reach the USD2 trillion mark faster. The proactive approach of the government is demonstrated by such measures as introducing 100% FDI under the automatic route in new sectors, the reduction of regulatory burdens to enhance the EoDB, promoting competitive co-operative federalism between the states and concluding international agreements with India’s trade partners. These policies will greatly strengthen the country’s position as a key destination for FDI. They will also contribute significantly to the nation’s economic growth and its global integration.
Smruti Shah is a partner and Sparsh Khosla is an associate at Cyril Amarchand Mangaldas.
Cyril Amarchand Mangaldas
Peninsula Chambers Peninsula
Corporate Park
GK Marg, Lower Parel
Mumbai – 400 013, India
Contact details:
M: +91 9833818006
T: +91 22 249 64455
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