Key Takeaways:
- Nirmala Sitharaman stated the government is open to reviewing capital gains taxes.
- Foreign portfolio investors pulled a record ₹1.8 lakh crore in fiscal year 2026.
- The West Asia conflict threatens to spike fuel costs and disrupt exports.
Finance Minister Nirmala Sitharaman on Tuesday said the government is open to reviewing capital gains taxes and other investor concerns as foreign portfolio investors continue pulling funds from Indian markets amid global uncertainty and a weakening rupee.
Foreign portfolio investors (FPIs) have accelerated withdrawals from Indian equities in recent months, citing higher capital gains taxes, currency depreciation, and changing global investment allocations. Responding to a question on whether the government is considering reducing such taxes, Sitharaman said authorities are willing to consider stakeholder feedback.
“On this issue, and on every other issue, we are always ready to listen to people. We will take their inputs,” Sitharaman said on the sidelines of an awards event organized by the Cotton Textiles Export Promotion Council in Mumbai.
FPI Outflows Hit Record Levels
India currently imposes a 20% short-term capital gains tax on equity shares and equity mutual funds, while long-term capital gains above ₹125,000 on investments held for more than 12 months are taxed at 12.5%.
FPIs were net sellers of Indian securities worth a record ₹1.8 lakh crore in fiscal year 2025-26, up from ₹1.3 lakh crore in FY25. The largest monthly outflow occurred in March 2026, when investors pulled out nearly ₹1.18 lakh crore.
According to data from the Reserve Bank of India, FPIs have already recorded net outflows exceeding $10 billion, or about ₹95,200 crore, in FY27 so far. This includes sales of $8.3 billion in April and another $1.8 billion through May 20.
Analysts have linked the outflows to rising global interest rates, stronger returns in developed markets, and concerns over India’s tax structure for foreign investors.
Government Reviews Suggestions on Rupee, Bonds
Nirmala Sitharaman also said the government is evaluating several proposals aimed at attracting foreign capital and stabilizing the rupee, including suggestions related to sovereign bonds and gold-linked investment instruments.
“People voluntarily send, some people are collecting from departments. We will look into every one of these submissions,” she said.
The Indian rupee has faced pressure amid continued capital outflows and global market volatility tied to geopolitical tensions and commodity price fluctuations.
Market participants have urged the government to consider policy measures that could improve investor sentiment, including tax relief and instruments that attract long-term overseas capital.
West Asia Conflict Raises Export Concerns
Speaking separately at the 37th Foundation Day event of the Small Industries Development Bank of India, Sitharaman warned that the ongoing conflict in West Asia could increase fuel costs and disrupt exports.
“The West Asia crisis is not only 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,” she said.
The government earlier reduced central excise duty on petrol and diesel by ₹10 per litre on March 27 to cushion consumers and businesses from rising global crude oil prices. The move is expected to cost the government more than ₹1 lakh crore in FY27.
Economists said higher fuel and logistics costs could add pressure on inflation and trade at a time when global demand remains uncertain.
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