I am mystified by what we’ve done now. Instead of giving incentives to equities by reverting to the “goldilocks tax architecture of 2004”, we’ve swung to the other extreme. By abolishing all taxes on foreign investments in government bonds, we’ve created a goldilocks tax regime for foreign debt! When we should have bolstered the economy with a thick buffer of foreign risk capital, we’ve loaded tonnes of higher debt on it! The arithmetic is a tad perverse:
-
We expect to get $ 50 bn of additional foreign investment in treasuries; by abolishing income tax on this instrument, we’ve perhaps given up about $ 1 bn, or about Rs 10,000 cr of tax revenues. Add to this the Rs 4000 cr of taxes on the current block of foreign investments in government bonds, and the total giveaway adds up to Rs 14,000 cr.
-
As against this, an intelligent estimate (by ChatGPT) indicates that the government could have earned about Rs 12-15,000 cr via LTCG on foreign equity investments in FY 26.
-
So, we gave a bounty of Rs 14,000 cr to strap on $ 50 bn or Rs 5 lakh crore of additional debt, when we could have given roughly the same quantity of largesse to stock up on hundreds of billions of dollars of foreign equity or risk capital. Isn’t that perverse?
Clearly, the government’s primary objectives were as follows:
-
First and foremost, reduce the cost of its own borrowing.
-
Secondly, shore up the value of the rupee against the dollar.
-
And thirdly (if at all), benefit the broader private economy.
I ask you, in all honesty—shouldn’t the above ranking be reversed? Shouldn’t government policy be made to create the best conditions across the economy, as opposed to fulfil a relatively narrow objective, of lowering its own interest cost?
