India’s growth story remains compelling, but attracting and retaining foreign capital requires more than strong economic fundamentals. A competitive tax regime, lower transaction costs and predictable policies are equally important.
Capital is mobile, but investor confidence is not built on growth prospects alone. When global investors decide where to deploy their money, they weigh a range of factors: corporate earnings, valuations, currency movements, market liquidity, transaction costs, taxation and policy predictability. A country may offer an attractive long-term growth story, but if the returns it delivers after taxes and costs are less competitive than those available elsewhere, capital will inevitably look for alternatives.
This is an important consideration for India today. The country remains one of the world’s most promising long-term investment destinations, supported by its economic scale, domestic consumption and structural growth opportunities. Yet foreign portfolio investors (FPIs) have withdrawn Rs 4.74 lakh crore from Indian equities since January 2025, exceeding the Rs 3.86 lakh crore invested over the nine years from 2016 to 2024.
These outflows cannot be attributed to taxation alone. Global interest rates, geopolitical uncertainty, relative market valuations, corporate earnings and rupee depreciation all influence foreign investment decisions. However, taxation is one of the few factors directly within the government’s policy control. It therefore deserves closer scrutiny.
The central question is not whether India should tax capital gains, but whether its equity tax regime remains competitive in a world where investors can choose between multiple markets.