Business · India Bureau
Tax cuts alone unlikely to reverse FPI outflow: Analysts
While reducing capital gains taxation would benefit India's capital-starved economy, experts say such measures alone cannot sustain foreign portfolio investment flows. Multiple factors beyond tax policy will determine investor sentiment.
LSN India ·
Cutting long-term and short-term capital gains (LTCG/STCG) taxes could provide relief to India's investment landscape, but would not independently revive flagging foreign institutional investor (FPI) inflows, according to market analysts.
Venugopal Garre of Bernstein Research said that while lower capital gains taxation would be desirable for an economy facing capital constraints, it represents only one component of a broader investor calculus. FPI decisions hinge on multiple macroeconomic factors beyond the tax regime, he noted.
JM Financial and other financial services firms have similarly weighed in on the debate, with consensus emerging that tax policy reform must be accompanied by other structural improvements to attract sustained foreign investment. Analysts point to factors including currency stability, interest rate differentials, growth momentum, and geopolitical considerations as equally influential in determining capital flows.
India has experienced volatility in FPI movements in recent months, prompting policymakers and market participants to examine all levers that might stabilize or encourage foreign investment. The debate reflects broader discussions about whether fiscal measures alone can address investor concerns or whether comprehensive policy reform is necessary.