Union Budget 2025 increased the Sectoral cap of FDI to 100 per cent from 74 per cent for:

Correct — D, Insurance Sector. The 2025-26 Budget speech carries a heading of its own for this measure and states the numbers exactly as the question does: the foreign direct investment limit for the insurance sector will be raised from 74 to 100 per cent. Two conditions travel with it. The full 100 per cent is available only to companies that invest the entire premium in India, so the liberalisation is tied to keeping the investible funds within the country; and the existing guardrails and conditionalities on foreign investment in insurance were to be reviewed and simplified. The figure 74 in the stem is itself the marker for insurance, because that was the cap set in 2021, when the Insurance Act's foreign-holding limit was raised from 49 to 74 per cent. Read that way the question answers itself: the only large Indian sector sitting at a 74 per cent FDI ceiling on the eve of this Budget was insurance.

• (a)Telecom Sector — Telecom already allows 100 per cent foreign investment, and has since 2021, when the route was also made automatic subject to security conditions. There was no cap of 74 per cent left to raise.
• (b)Power Sector — Power generation, transmission and distribution, other than atomic energy, has long permitted 100 per cent foreign investment under the automatic route. Nothing in this Budget changed a ceiling there.
• (c)Defence Sector — The most tempting option, because defence FDI was liberalised within recent memory. But that change came in 2020, when the automatic route was widened from 49 to 74 per cent with more allowed above that on the government route in cases likely to bring modern technology. It was not the subject of the 2025 announcement.

Foreign direct investment in India is governed sector by sector. Each sector has a cap expressed as a percentage of equity, and a route — automatic, where no approval is needed, or government, where the administrative ministry must clear the investment. Insurance is one of the sectors whose cap sits in a statute, the Insurance Act of 1938, so raising it requires an amendment rather than a policy note, which is why an announcement of this kind is made in the Budget speech.

Two anchors settle the item without recalling the speech. The first is the number 74: it is unusual, and it belongs to insurance from the 2021 change and to defence from the 2020 change. The second is what the other options already allow — telecom and power have been at 100 per cent for years, so neither could be raised from 74. Between the two remaining candidates, defence's ceiling was moved five years earlier and under the automatic route rather than as an absolute cap, while insurance was the sector the 2025 Budget explicitly named. As of the September 2025 exam this was an announced intention rather than a completed change, since the statutory amendment to the Insurance Act had still to be carried through Parliament, and a card written today should say so plainly rather than present the 100 per cent figure as long-settled law.

• Budget speech 2025-26, paragraph 95: the FDI limit for the insurance sector will be raised from 74 to 100 per cent.
• The enhanced limit is available only to companies that invest the entire premium in India.
• Existing guardrails and conditionalities on foreign investment in insurance were to be reviewed and simplified.
• The insurance cap had been raised from 49 to 74 per cent in 2021; insurance intermediaries were already allowed 100 per cent.
• Defence FDI was widened to 74 per cent under the automatic route in 2020, with higher stakes possible through the government route.

• Choosing defence because the number 74 is associated with it too; that change belongs to 2020.
• Assuming a Budget announcement is already law; a change to the insurance cap requires an amendment to the Insurance Act.
• Confusing the cap for insurance companies with the cap for insurance intermediaries, which had already been at 100 per cent.

As a which-sector item on a recent cap change, as a match between sectors and their permitted routes, or as a statements item on what counts as foreign direct investment.

• practice — not a real PYQ

  Before the Union Budget of 2025-26, the sectoral cap on foreign direct investment in insurance companies in India stood at

  • (a)26 per cent
  • (b)49 per cent
  • (c)74 per cent
  • (d)100 per cent

  Answer(c) 74 per cent — raised to that level in 2021 from the 49 per cent set in 2015, and proposed for a further increase to 100 per cent in the 2025-26 Budget.

• practice — not a real PYQ

  Under the proposal announced in the Union Budget 2025-26, the higher foreign investment limit in insurance is available to companies that

  • (a)list their shares on an Indian stock exchange
  • (b)invest the entire premium in India
  • (c)are incorporated in a country with a bilateral investment treaty
  • (d)maintain a solvency ratio above three

  Answer(b) invest the entire premium in India — the Budget speech ties the enhanced limit to that condition.