India has taken a significant step to attract foreign investment by scrapping capital gains tax and withholding tax on investments made by Foreign Institutional Investors (FIIs) in government bonds. This move aims to bring in tens of billions of dollars in foreign funds and bridge the looming balance of payments (BoP) deficit, which is estimated to reach $60 billion in 2026-27.
Key Highlights
- India has waived capital gains tax and withholding tax on FII investments in government bonds.
- The move is expected to bring in tens of billions of dollars in foreign funds.
- The BoP deficit is estimated to reach $60 billion in 2026-27.
- FII investment in government bonds currently stands at Rs 3.75 lakh crore, or 3.34% of the available amount.
Impact on the Economy
The removal of taxes on FII investments is expected to boost inflows at a time when Foreign Portfolio Investors (FPIs) have pulled out $28 billion from Indian stock markets so far in 2026. The move is also seen as a measure to stabilize the rupee, which has weakened significantly in recent months.
The Reserve Bank of India (RBI) has also eased norms for state-owned enterprises to borrow overseas and for banks to mobilize foreign current deposits. The RBI will provide a concessional foreign exchange swap facility until September 30, 2026, to encourage external commercial borrowings (ECBs) by public sector firms.
RBI’s Macro-Economic Forecasts
The RBI has cut its GDP growth forecast for the current financial year to 6.6% from 6.9% and raised the inflation projection to 5.1% from 4.6%. The revised forecasts were announced by the RBI governor, who cautioned that elevated energy prices and global supply constraints were having “adverse spillovers” on economic activity.
Source: Original Article
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