The last week, world witnessed one of the most volatile weeks in the recent past for trans-Atlantic relations, amidst the powerful conversations at annual World Economic Forum held at Davos. While the priority list got sidelined on the global stage, hopefully we will have better unfolding of India’s Union Budget 2026-27, expected to be presented on 1 February 2026.
Corporate India is hoping for clarity on taxes, reforms, and policy priorities that can unlock the next leg of economic momentum, and achieve the goal of a $5-trillion economy. Capex growth is expected to stay central on the agenda, but it is imperative to address opportunities of AI-led growth, digital infrastructure, manufacturing expansion and energy transition.
Why AIFs Matter to Capital Formation?
Alternative Investment Funds (AIF) play a critical role in financing parts of the economy where traditional channels are less effective. Early-stage companies, infrastructure projects, stressed or transitional assets and MSMEs increasingly rely on patient, risk-tolerant capital.
Having been part of the investing ecosystem for over two decades and experienced the various market cycles, I see first-hand how investor appetite for alternative assets in India has evolved. Private equity, venture capital, private credit and real asset funds are no longer niche products; they are becoming essential components of long-term capital allocation. Yet, despite strong demand and a growing domestic savings pool, India’s AIF ecosystem remains constrained by structural and policy frictions.
Over the past few years, capital raising has become more challenging amid global tightening and higher risk aversion. This has made domestic policy clarity even more important. Investors committing capital to funds with long time horizons need certainty of a stable regulatory and tax framework throughout the life of the fund.
Steps Needed to Grow AIFs at Scale
If India wants to meaningfully expand its alternative investment base, several targeted steps can make a tangible difference.
First, harmonising taxation across AIF categories should be a priority. A uniform and transparent pass-through regime would reduce complexity, align India with global fund jurisdictions and improve fund economics for investors.
Second, enabling broader domestic participation is essential. While investor protection must remain paramount, calibrated mechanisms such as regulated feeder structures or revised thresholds for sophisticated investors can deepen the capital pool and reduce over-dependence on a small set of institutional investors.
Third, strengthening the private credit framework can unlock significant growth. Credit AIFs are increasingly filling gaps in MSME and growth-stage financing. Policy support in the form of risk-sharing mechanisms, co-investment platforms or recognition within priority sector frameworks could materially scale this segment.
Fourth, improving operational ease would enhance India’s attractiveness as a fund domicile. Simplified compliance, digital reporting and faster approvals for cross-border investments would reduce friction and lower costs for both fund managers and investors.
Last but not the least is Strategic Focus on Growth Sectors to signal a clear policy emphasis on sectors like Technology and deep tech (AI, semiconductors, biotech), Renewables and transition finance, Logistics and supply chain infrastructure and Healthcare where AIFs can have transformative impact.
Incentives whether fiscal, regulatory or infrastructure-related can steer private capital into these strategic domains, accelerating innovation and competitiveness.
A Budget Signal Beyond Numbers
From a fund manager’s perspective, the Budget’s importance lies less in immediate inflows and more in the signal it sends to long-term capital. Alternative investments are built on trust – trust that capital can be deployed efficiently, returns realised predictably and policies applied consistently.
If the Budget can address core structural issues around taxation, access and regulatory clarity, it will reinforce India’s position as a credible and competitive destination for alternative capital. That, in turn, can support entrepreneurship, infrastructure creation and credit expansion without increasing the fiscal burden on the state.
What markets want is not dramatic reform, but thoughtful, durable change that enables confidence and long-term participation.
Rajini Vislavath is CIO Alternatives at LGT Wealth India.
Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.
