India Boosts Foreign Investment Appeal Amid Record Capital Outflows
India is taking strong steps to attract foreign investment as it faces unprecedented capital outflows. On Friday, the government revealed an important decision: foreign investors, along with the Bank for International Settlements (a global financial institution owned by central banks), will be exempt from income tax on interest or capital gains. This new policy is set to kick in on April 1, 2026.
Currently, foreign investors pay a 12.5% tax on long-term capital gains from listed shares and bonds held for more than a year, along with a 20% withholding tax on interest from government bonds.
In its monetary policy update, the Reserve Bank of India also announced plans to broaden the range of government securities available for non-resident investors. Moreover, it is lifting limits on short-term investments, concentration, and individual securities for foreign portfolio investors.
RBI Governor Sanjay Malhotra noted that these initiatives, along with various trade agreements, should lead to a more favorable balance of payments this year compared to previous projections.
Additionally, the central bank is increasing the investment limits for non-resident Indians and holders of overseas Indian citizenship in the stock market without needing to register with India’s capital market regulator.
Since the beginning of the year, foreign investors have significantly withdrawn from Indian markets, selling equities worth $27.6 billion. This is a stark rise compared to the total of $18.9 billion sold throughout 2025, according to data from the Indian depository NSDL.
These sell-offs, along with a rising import bill driven by higher global oil prices, have put pressure on the Indian rupee, making it one of the worst-performing currencies in Asia. Experts believe that these recent measures to facilitate capital inflows should support the rupee, which has been sliding due to the substantial outflow of funds. Krishna Bhimavarapu, an economist at State Street Global Advisors, commented that this initiative is a positive move and comes at a crucial time, as the rupee has depreciated by over 6% this year according to LSEG data.
