To ease capital inflows, start with a friendlier tax regime

Outward remittances under the liberalised remittance scheme have crossed $20 billion in the first eight months of 2026, according to a report in this paper. Proposals to impose curbs or restrictions on such outflows are regressive

Proposals to impose curbs or restrictions on such outflows are a step backwards.

3 min readNov 4, 2026 06:00 AM IST First published on: Nov 4, 2026 at 06:00 AM IST

For some time now, it appears that India’s appeal among global investors has diminished. Since 2024-25, foreign portfolio investors have taken out $51 billion from the equity markets. This souring of sentiment has led to a clamour for a review of the existing long-term capital gains tax regime. But will tax cuts alone be enough to attract foreign capital back to India’s shores? There are several reasons why foreign capital has flowed out of the country over the past few years. Globally, capital is moving more towards companies in the AI ecosystem, where India does not have a significant presence. From US majors like Nvidia and Google to South Korean companies like Samsung and SK Hynix and the Taiwanese powerhouse TSMC — investors have been allocating funds across the entire AI chain. Alongside, yields in developed markets, notably the US, have been on the rise — the 10-year US bond yield is currently hovering around 4.9 per cent — raising the risk-free rate, attracting capital. Other factors such as companies’ earnings expectations and valuations could have also played a part in investors’ exit. Finance Minister Nirmala Sitharaman is, thus, right to caution against seeing tax concessions as the principal driver of stock market performance.

However, in order to encourage foreign capital flows, and to become a global financial centre, India should move to a regulatory framework and a tax structure that is competitive when compared to friendlier jurisdictions around the world. The government should take steps to facilitate more capital inflows. In June, it provided tax exemptions on interest income, short- and long-term capital gains, and streamlined investment norms to increase participation of foreign investors in government bonds.

Any changes in the tax structure, towards making it more attractive for foreign investors, would, however, raise questions of discrimination against rupee investors. It could be seen as favouring a specific set of investors. Sitharaman also pointed this out — “If you pitch for dollar (investors), what about rupee (domestic) investors?” Further, as policy-makers take steps to encourage foreign capital, they must resist the temptation to curb domestic outflows. Outward remittances under the liberalised remittance scheme have crossed $20 billion in the first eight months of 2026, according to a report in this paper. Proposals to impose curbs or restrictions on such outflows are a step backwards.