Tax and economic experts have called for the Union Budget to prioritize simpler and more predictable tax laws. They emphasize the need for tax neutrality in cross-border and corporate reorganisations. This move would strengthen India's appeal as a long-term destination for foreign direct investment (FDI).
Rationalising Tax Framework
Experts argue that rationalising the tax framework and lowering the cost of capital would complement ongoing reforms. This approach would help attract sustained foreign capital inflows. Global investment conditions remain uncertain, making such measures crucial.
Opportunity for Recalibration
Rudra Kumar Pandey, Partner at Shardul Amarchand Mangaldas & Co, stated that the forthcoming Budget offers an opportunity to recalibrate the tax system. He believes it should support growth while removing long-standing structural hurdles to investment and corporate restructuring.
Pandey explained that the budget presents a chance for policymakers to adjust the tax framework. This adjustment should foster growth, reward compliance, and enhance the purchasing power of citizens. It must also address structural impediments to corporate reorganisations and investment flows.
Lower Cost of Capital
He added that a structurally lower cost of capital would deepen private investment. This reduction should be backed by credible fiscal consolidation, deregulation, and tax clarity. Such steps would make India more attractive for stable FDI and portfolio inflows than incremental liberalisation alone.
Gap Between Corporate Law and Tax Treatment
Pandey highlighted a gap between corporate law reforms and tax treatment. The Companies Act now allows a wider range of fast-track mergers and overseas holding company reorganisations from September 2025. However, similar tax neutrality has not been extended to fast-track demergers.
He stressed that extending tax-neutral treatment to fast-track demergers is essential. This extension would ensure that procedural efficiencies achieved under corporate law are not nullified by adverse tax outcomes.
Sectoral Opportunities
On sectoral opportunities, Pandey noted growing foreign investor interest in India's defence ecosystem. This interest is driven by higher procurement outlays, export momentum, and co-development opportunities under Atmanirbhar Bharat. Rather than raising FDI caps, he suggested removing specific regulatory bottlenecks.
He also mentioned that foreign investors remain keen on India's fast-growing e-commerce sector. The scale of the digital consumer base and its role in supporting exports and MSMEs make it attractive.
Diversifying Trade Markets
Rumki Majumdar, Economist at Deloitte India, said India's efforts to diversify trade markets could aid foreign investment. However, she emphasized that stronger execution is needed to achieve this goal.
Improving FDI Inflows
To improve FDI inflows, Majumdar stated that India must enhance the utilisation of free trade agreements. This enhancement would require further progress on ease of doing business, better logistics and competitiveness, and a continued focus on skilled talent availability.
She identified key sectors where foreign investment will be crucial. To move up the value chain, India will need investment in advanced manufacturing. This includes semiconductors, pharma, heavy machinery, clean energy, battery storage, and grid modernisation. These sectors are vital to meet rising demand.
