To ease capital inflows, start with a friendlier tax regime

India's attractiveness for global investors has waned since 2024-25, with foreign portfolio investors withdrawing $51 billion from the equity markets. This prompted calls for a reassessment of the existing long-term capital gains tax regime. However, tax cuts alone may not suffice to lure foreign capital back to India. The shift towards AI companies, rising yields in developed markets, and valuation expectations have contributed to capital outflows.

Finance Minister Nirmala Sitharaman emphasizes that tax concessions are not the sole driver of stock market performance. To entice foreign capital and establish India as a global financial hub, the country should adopt a competitive regulatory framework and tax structure. The government has already taken steps, such as exempting interest income, short- and long-term capital gains, and simplifying investment norms for foreign investors in government bonds.

However, any modifications to the tax system to attract foreign investors must consider the concerns of domestic investors and avoid imposing restrictions on outward remittances, which have reached $20 billion in the first eight months of 2026.