India Unveils Sweeping Financial Sector Overhaul, Eyes Banking Reforms for 2047 Vision
In a move signaling a strategic push to modernize its financial architecture, the Indian government has unveiled a comprehensive set of proposals in the Union Budget 2026-27. Central to the plan is the formation of a 'High Level Committee on Banking for Viksit Bharat' (Developed India), tasked with conducting a sweeping review of the sector to align it with the nation's long-term economic ambitions.
Presenting the budget in Parliament, Finance Minister Nirmala Sitharaman emphasized the committee's role in preparing the financial ecosystem for the country's next stage of growth. "We are looking at a committee that examines the entire banking sector so it can provide recommendations to help us plan for banking in 2047," Sitharaman was quoted as saying by The Economic Times. She indicated that the roadmap stemming from this review would be crucial for achieving India's centennial vision of becoming a developed economy.
The proposed reforms extend far beyond banking. In a bid to attract foreign capital, the government announced a full review of the Foreign Exchange Management (Non-debt Instruments) Rules. The objective is to create a more streamlined, investor-friendly framework that reflects contemporary economic priorities. Simultaneously, regulations for Foreign Portfolio Investment (FPI) are set for liberalization. The budget proposes raising the investment ceiling for individual foreign residents in listed Indian equities under the Portfolio Investment Scheme from 5% to 10%, with the aggregate cap for all such investors jumping from 10% to 24%.
To deepen domestic capital markets, the budget introduces a market-making mechanism for corporate bond indices and provisions for total return swaps on corporate bonds. These measures are designed to enhance liquidity, facilitate better access to funds, and develop the derivatives market. Furthermore, in a move to boost efficiency in public sector financing, the government plans to reorganize the Power Finance Corporation and the Rural Electrification Corporation.
Analyst & Industry Reactions:
"This is a forward-looking, structural budget for finance," said Priya Sharma, a Mumbai-based senior economist at Horizon Capital. "The 2047 banking committee isn't about quick fixes; it's a foundational exercise. Coupled with the FPI easing and bond market reforms, this package could significantly improve India's capital allocation efficiency over the next decade."
Rajeev Mehta, a veteran banker and former CEO of a mid-sized public sector bank, struck a note of caution. "Committees are not new. The proof will be in the implementation and the political will to follow through on potentially tough recommendations, especially regarding public sector bank governance and consolidation. The intent is clear, but the execution path remains to be seen."
"More committees, more promises," remarked Arjun Kapoor, a financial activist and vocal critic, with palpable skepticism. "While they tinker with investment caps, what about the urgent need for credit flow to MSMEs and agricultural sectors? This feels like preparing a luxury liner for 2047 while many are still struggling to find a boat today. It's elite planning disconnected from ground-level financial stress."
The proposals, if enacted, would mark one of the most significant coordinated shifts in India's financial regulatory approach in recent years, setting the stage for a period of potential transformation as the country targets its Viksit Bharat 2047 goal.
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