India is preparing to roll out new measures aimed at attracting more foreign money into the country, with key decisions likely to be taken as early as this week. According to Bloomberg, citing people familiar with the matter, the Union Cabinet is expected to discuss a major reduction in the taxes that foreign funds pay when investing in Indian bonds.
Interest tax on bonds also under review
The Cabinet is also expected to examine the future of the 20% tax currently imposed on interest earned from bonds. According to Bloomberg, officials are weighing two options: either scrapping the levy altogether or reducing it to a very low level. The proposal is still under consideration, and a final decision could be taken after Cabinet discussions.
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If approved, the measures would mark another step by India to encourage greater foreign participation in its financial markets and bring in additional overseas investment.
RBI may open more government bonds to foreign buyers
Separately, the Reserve Bank of India is likely to classify some long-term government bonds as fully accessible. This would allow overseas investors to buy those securities without any ownership limits. The central bank last revised the list of securities available under the fully accessible route in 2024. At that time, it removed 14-year and 30-year government bonds from the list.
The Finance Ministry and the Reserve Bank of India have yet to officially respond to the report. Last month, Bloomberg News reported that India was considering tax cuts following a recommendation from the central bank.
Pressure on the Rupee
Prime Minister Narendra Modi recently urged citizens to conserve foreign exchange as higher oil import costs have increased the strain on the country’s finances. Several factors are responsible for the decline. These include US trade tariffs, record foreign fund outflows from Indian markets, and a sharp rise in oil prices linked to the war involving Iran.
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The rupee touched a record low of 96.9650 against the US dollar on May 20.
Since then, it has recovered some ground after the Reserve Bank of India stepped up support measures and oil prices eased amid renewed US-Iran peace efforts. The rupee touched a record low of 96.9650 against the US dollar on May 20.
More investment routes for overseas Indians
Meanwhile, the government is also expected to notify a proposal that would allow individual persons resident outside India, known as PROIs, to invest in shares of listed Indian companies through the portfolio investment scheme. The move would provide another avenue for overseas investors to participate in India’s stock market.
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