Govt weighs tax cuts to boost foreign bond inflows: Report - The Economic Times

India Finance Ministry is reportedly fast-tracking plans to significantly cut taxes for foreign investors in its sovereign bond market, specifically targeting capital gains and withholding taxes on interest income. This aggressive push, first hinted at by Bloomberg, aims to dramatically boost foreign institutional investor inflows and shore up the persistently weak Indian Rupee, which has been under sustained pressure against the US Dollar. The urgency stems from a confluence of factors: the Indian Rupee recent depreciation past 84.5 per USD, driven by a widening trade deficit and intermittent capital outflows, coupled with the government's pressing need to finance ambitious infrastructure projects without excessively burdening domestic banks or worsening the fiscal deficit. By making Indian Government Bonds more attractive, New Delhi hopes to diversify its funding sources and enhance market liquidity ahead of anticipated inclusions in major global bond indices, which could unlock billions in passive investment. While a formal announcement is expected in the coming weeks, potentially before the next government borrowing calendar update, analysts warn that the reforms, while welcome, are not a standalone solution. Investors will closely watch the finer print on tax exemptions and the broader macroeconomic stability, including the Reserve Bank of India stance on inflation, to gauge the true impact on long-term capital inflows and currency strength.