Rising global uncertainty and persistent capital outflows are pushing India to reconsider its investment policies.

Amid pressure on the rupee and growing concerns over foreign exchange reserves, the government may reduce taxes on foreign bond investors to attract fresh inflows.

According to a Bloomberg report, the proposal reportedly came from the Reserve Bank of India.

The suggested move aims to align India’s tax structure with global standards while encouraging overseas investors to return to the domestic bond market.

At present, foreign investors pay nearly 20 per cent tax on coupon income from Indian bonds. Earlier, they enjoyed a concessional 5 per cent rate, which the government withdrew in 2023.

Now, policymakers appear willing to revisit the structure as pressure on the rupee intensifies.

Foreign institutional investors have continued heavy selling in Indian equities throughout 2026. During the first four months alone, FIIs reportedly pulled out nearly ₹2.06 lakh crore from the market.

Although domestic institutional investors provided some support, sentiment remained weak due to multiple global and domestic factors.

A weakening rupee, elevated crude oil prices, and attractive valuations in other markets have accelerated the outflow trend.

Consequently, the Indian currency recently touched a record low of 95.96 against the US dollar before recovering slightly after reports of the proposed tax relief surfaced.

The bond market also reacted positively. India’s 10-year treasury yield reportedly declined by five basis points to around 7 per cent following the development.

Investors now expect the move to improve liquidity and stabilise foreign participation in debt markets.

India’s currency has emerged as Asia’s weakest performer in 2026 so far, falling more than 6 per cent against the dollar.

Meanwhile, the ongoing Iran-US conflict has sharply increased global crude oil prices, with rates climbing near $105 per barrel.

Since India imports nearly 85 to 90 per cent of its crude oil needs, rising energy costs are putting significant pressure on the country’s forex reserves.

As a result, attracting foreign capital has become increasingly important for the government.

Alongside economic measures, Prime Minister Narendra Modi has also urged citizens to reduce unnecessary fuel consumption and support efforts to limit foreign exchange outflows.

Image from Pxhere (Free for commercial use / CC0 Public Domain)

Image Published on March 27, 2017

Image Reference: https://pxhere.com/en/photo/1294393