Financial services as a growth engine: What Budget 2026 must deliver

By Jugal Kajaria

India stands at a pivotal moment as Budget 2026 approaches, and few sectors can accelerate growth as powerfully as Financial Services (FS). India’s real GDP growth is estimated at 7.4% in FY26 led by investment demand and services sector growth. More than a system of payments or lending, the FS sector today acts as the economy’s central engine by allocating capital, pricing risk, and transmitting policy signals across the real economy. When this engine operates efficiently, it amplifies growth across infrastructure, manufacturing, MSMEs, households, and the expanding footprints of the digital ecosystem.

A modern, fast‑growing economy depends on strong financial intermediaries. In India, banks, NBFCs, insurers, pension funds, mutual funds, and capital markets channel household and institutional savings into productive investments across the economy. This steady flow of capital drives GDP growth, improves productivity, formalises activity, and supports MSMEs and start‑ups through credit, funding, and risk‑mitigation tools. To sustain this momentum, Budget 2026 must focus on strengthening credit systems, deepening markets, and ensuring a predictable and innovation‑friendly regulatory environment.




Continuity of the pace of tax reforms with the mantra of ‘simplification’ being the core objective will play a vital role in shaping India’s competitiveness as a global financial hub. A rationalisation of the tax regime for foreign bank branches—which currently face an effective tax rate of 38.22 percent -- would create a more balanced environment for global institutions. Extending withholding tax exemption on interest received to NBFCs similar to the exemption provided to Banks would introduce operational efficiency and arrest cash flow leakages for NBFCs helping them focus on greater penetration.

Judicial clarity and global alignment are equally important. Recent Supreme Court rulings in the Tiger Global and American Express have implications for foreign investors and foreign banks. The global investor community is looking at clear and upfront tax guidance which would provide the predictability needed for investment decisions. The global investor community would be keenly looking at how the Hon’ble Finance Minister balances the expectations of the global investor community in respect of their past as well as the future investments.

Alongside these reforms, India has been gaining prominence as an emerging international financial services centre (IFSC) through the development of GIFT City. Past Budgets have provided regulatory and tax relaxations that have enabled strong and steady progress. Global and Indian investors are regularly coming up with newer business models in GIFT City, which needs regulatory and tax amendments for enabling the same. Continuing with the past practice, Budget 2026 should continue to promote GIFT City for development of new business activities and products in GIFT City. The emerging areas of Global / Regional Treasury Centres, Commodity Trading, and Oilfield Equipment leasing will be eagerly looking up to Budget 2026 for regulatory support and tax clarity.

Notifying the framework for Variable Capital Company structures would significantly widen the range of fund‑management activities within the IFSC. As the re‑insurance market in GIFT City continues to expand, it will be important to ensure a level playing field for Lloyd’s syndicates to attract larger pools of global capacity. Collectively, these reforms can materially enhance GIFT City’s attractiveness for banks, asset managers, treasury centres, insurers, leasing platforms, and other cross‑border financial participants.

Similar to recent Budgets, timely disposal of tax assessments and appeals must remain a priority. With about INR 26.3 lakh crore—around 8 percent of India’s GDP—locked in income‑tax disputes, direct‑tax litigation continues to be a major concern. This issue is particularly significant for the FS sector, where cases often involve legacy matters that require clear and consistent guidance from tax authorities and take years to be resolved. Establishing defined timelines and accountability frameworks would enhance trust and reduce uncertainty for financial institutions and investors.

To conclude, India’s FS sector is positioned to power the nation’s next phase of growth. Budget 2026 can accelerate this transition by pairing targeted policy support with competitive tax rules. Strengthening FS institutions, deepening markets, and improving digital and regulatory architecture will expand the economy’s credit capacity, strengthen inclusion, and reinforce India’s emergence as a global financial hub—creating the investment foundation needed for sustainable and long‑term growth. These financial sector reforms will go a long way in not only sustaining GDP growth but also in boosting the per capita income of India’s population.

(Jugal Kajaria is Tax Partner – EY India. With Inputs from Darshil Shah, Tax Professional, EY India)