Mumbai – The government is open to stakeholder views on reducing capital gains tax on investments in stock markets, aiming to make domestic markets more attractive to foreign portfolio investors (FPIs), Finance Minister Nirmala Sitharaman said on Monday.
Foreign portfolio investors have been fleeing Indian markets, driven by higher capital gains taxes, a weaker rupee, and shifting global allocations.
“On this issue, and on every other issue, we are always ready to listen to people. We will take their inputs,” Sitharaman said in response to a question on whether the government is considering reducing such taxes. She was speaking on the sidelines of an awards function organised by the Cotton Textiles Export Promotion Council (TEXPROCIL) in Mumbai.
The government imposes a short-term capital gains tax (STCG) of 20% on equity shares and equity mutual funds, and a 12.5% long-term capital gains (LTCG) tax on annual gains of over ₹125,000 on such investments sold after 12 months.
FPIs were net sellers of securities worth a record ₹1.8 trillion in FY26, the highest in 34 years and up from ₹1.3 trillion in FY25. The highest outflows were seen in March 2026 at around ₹1.18 trillion. According to the Reserve Bank of India (RBI) data, FPIs have registered net outflows of over $10 billion (approximately ₹95,200 crore) in FY27 so far, including sales of $8.3 billion in April 2026 and $1.8 billion as of 20 May.
On whether the government is considering measures such as issuing sovereign bonds to attract foreign capital amid a fast-depreciating rupee, Sitharaman said that the government is receiving and gathering a lot of inputs and suggestions, including on rupee, investments and gold or sovereign bonds. “People voluntarily send, some people are collecting from departments. We will look into every one of these submissions.”
West Asia conflict and economic risks
At a separate event to mark the Small Industries Development Bank of India’s (SIDBI) 37th Foundation Day, the minister warned that the ongoing West Asia conflict could drive up fuel prices and hurt India’s exports in an uncertain global environment.
“The West Asia crisis not only is a diplomatic or a geopolitical issue, but for businesses and common people it can mean higher fuel cost, delayed cargo, costlier shipping, shortage of inputs, pressure on working capital and uncertainty in export orders,” Sitharaman said.
Describing high international crude prices as “ever changing” and “seriously dynamic”, Sitharaman said that these price fluctuations are also leading to “unimaginable increase” in international fertiliser prices and high gold prices, creating some challenges on India’s external position.
Prime Minister Narendra Modi’s call to conserve foreign exchange should be viewed in the context of three Fs–fuel, fertiliser and foreign exchange (or buying of gold). Further, the challenges are more external-driven whereas India’s domestic economic situation remains “positive and resilient” and high-frequency indicators reflect robust domestic demand, she said.
The Indian rupee has fallen by 11% in FY26 and by over 5% since the US-Iran war began on 28 February this year. It hit a record low of 96.90 against the US dollar on 20 May.
“The supply chain disruption (since the Ukraine-Russia war), the increasing fuel price and fertiliser price, they are not minor increases, they are very serious increases, all of which will have to be paid through foreign exchange,” she said on the sidelines of the TEXPROCIL event. However, she said she was confident that India will be able to “handle” these challenges, which are not of its making.
Fuel taxes and domestic supplies
Even so, the government decided to cut the central excise duty on petrol and diesel by ₹10 per litre on 27 March, in order to shield citizens and businesses from the steep rise in global crude prices. This is expected to cost the exchequer over ₹1 trillion in FY27.
“Had we not given that reduction at that time, even at that time, 10 rupees would have been the increase (in retail oil prices) at that time itself,” she said, adding that the price increases now are coming from the oil marketing companies because they are the ones “procuring and selling”.
Earlier this month, the government increased excise on exports of petroleum products, imposing a tax of ₹3 per litre on petrol, ₹16.5 per litre on diesel, and ₹16 per litre on jet fuel to ensure their domestic availability.
“We are not allowing export because it is earning foreign exchange, without attending to the domestic market’s needs,” she said at the SIDBI event, adding that the objective was also to ensure that domestic consumers, transporters, airlines and businesses get supply stability to protect manufacturing supply chains.
The government has since 15 May hiked the price of retail fuels four times, resulting in a cumulative increase of around ₹7.5 per litre in the price of petrol and diesel.
Sitharaman is optimistic that the Economic Stabilisation Fund (ESF) of ₹1 trillion, announced in the Union Budget for FY27, will help cushion some of the impact of the current crisis.
“This was an emergency cushion created before the full impact of the West Asia situation, so that India could respond quickly to global shocks, supply chain disruptions and also sudden stress in any sector,” she said, adding that customs duty exemption on specified critical petrochemical products till 30 June will also support sectors such as plastic, packaging, textiles, pharmaceuticals, chemicals and automotive components.
Sidbi’s evolving role
Sitharaman called upon SIDBI to expand cash flow-based lending and digital lending partnerships, especially for small and first-time borrowers, and to build strong green credit products to finance solar rooftops, energy-efficient machinery, green certification and waste-to-wealth units.
“SIDBI’s role must now expand from being only a lender to becoming a market maker and risk-sharing partner for India’s MSME and startup ecosystem. SIDBI should stop being in that comfort zone of being a lender to small enterprises,” she said.