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Inside India newsletter: India weighs a tax cut to win over foreign investors. Will it work?
India is considering removing long-term capital gains tax for foreign portfolio investors as regulators and business groups seek to reverse a sharp decline in overseas investment. Finance Minister Nirmala Sitharaman said she would consider calls to review the tax, which supporters say could make Indian markets more competitive with other emerging markets.
Foreign investors have withdrawn $18.9 billion from Indian equities in 2025 and more than $30 billion so far this year, while their share of Indian stocks has fallen to a record-low 14%. Experts say a tax change could improve sentiment, but may not be enough: India trades at 18.6 times forward earnings, above Taiwan and South Korea, while its expected earnings growth is slower than in other emerging markets.
In short
- India may scrap capital gains tax for foreign investors.
- Foreign investors have pulled out more than $30 billion this year.
- Experts say tax relief alone may not restore the market’s appeal.
Steelman: both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
Removing the tax could make Indian equities more attractive to foreign portfolio investors and bring India’s rules closer to those of competing markets. With overseas investment falling sharply, a change might improve sentiment, support demand for Indian shares and signal that policymakers are responsive to investors’ concerns.
The case against
A tax cut may offer limited help if investors are chiefly responding to high valuations and slower expected earnings growth than in other emerging markets. It could also reduce public revenue without resolving those underlying concerns, so improving India’s long-term investment appeal may depend more on stronger growth prospects than on tax treatment.
Explained simply
Foreign portfolio investors are overseas funds and institutions that buy shares in another country’s stock market. In India, they have become less prominent as they sell shares, while the government weighs whether changing the tax on profits from long-held investments could make the market more attractive.
India’s finance minister, Nirmala Sitharaman, oversees the country’s tax policy, and investors’ decisions can affect demand for Indian shares. The debate matters because tax is one factor in where funds invest; companies’ prices compared with expected profits and their prospects for growth also shape those choices.