India is not considering a cut in capital gains tax on foreign portfolio investors, or FPI, in the country at this point in time as a measure to stem capital outflows from the country, a top government source said.
The view in the government is that FPIs are neither reducing India allocations based on their assessment of the country’s attractiveness nor due to a global shift in capital flows to themes such as artificial intelligence, semiconductors and data centres in the US, Taiwan and South Korea.
Rather, the sustained FPI selling, the source said, seems to be taking place in response to the “America First” call given by the White House.
“Investment inflows were substantial when India’s was, in fact, lower. The pull-out since then is a strategic call by foreign investors; it’s not a view on India’s attractiveness,” this senior government functionary said.
The official acknowledged that there are demands to cut taxes on returns on foreign investments and that it is being discussed in investor circles as a potential strategy to ease pressure on the rupee. FPI profits are exempt from capital gains tax in most other markets; India levies a long term capital gains tax of 10%.
“If the tax restriction is removed for foreign portfolio investments, then we could see sustainable increase in allocations (to India),” Satish Ramanathan, chief investment officer-equity at JM Financial Asset Management Co. had in an April interview.
The rupee was trading at 96.27 for each US dollar Monday morning. Since the war began on 28 February, it has depreciated 5.71% against the US dollar. The rupee was also one of the world’s weakest-performing currencies in fiscal 2026 shedding about 11%. A has pegged the currency in 96-98 range by the end of calendar 2026.
Eye on US mid-term elections
“I’m monitoring closely the (US presidential) approval ratings and am waiting for November,” the source said.
The 2026 midterm elections in the US is scheduled for 3 November. Held every four years, the midterms get their name from the fact that they occur in the middle of a presidential term and are generally seen as a referendum on the sitting president. In 22 midterm elections from 1934 through 2018, the party controlling the White House lost, on average, 28 seats in the House of Representatives and four seats in the Senate. On only two occasions in this period, the president’s party gained seats in both the House and the Senate. The Democratic Party fared slightly better than average in the 2022 midterms.
President Donald Trump’s approval ratings have consistently stayed below 40% in recent weeks – a threshold that doesn’t augur well for his Republican Party in the midterms.
have pulled out ₹2.2 trillion from Indian equity markets in 2026 so far, data from National Securities Depository Ltd showed. This is already higher than the ₹1.66 trillion withdrawn during the whole of 2025. Net FDI has remained low, too. Consequently, India’s balance of payments is expected to end up in negative territory for the third year running in 2026-27.
In its latest India Strategy report, ‘Appeal to Action’, Kotak Institutional Equities wrote that the Prime Minister Narendra Modi’s recent call for moderation in gold imports, fuel usage and overseas travel is a signal that policymakers are becoming increasingly cautious about the macroeconomic impact of high energy prices and external pressures. “The government may have to look at more concrete steps in the case of a prolonged conflict,” the brokerage noted in the report.
Lowering tax on made in equities for foreign investors to encourage capital inflows into Indian markets and strengthen India’s balance of payments during periods of external stress could be one option, it added.