Finance Minister Nirmala Sitharaman on Monday said the government is open to considering concerns raised by equity investors over the taxation of capital gains. Responding to queries on demands for a review of capital gains taxes, Sitharaman said the government was prepared to hear investor feedback.
“On this specific issue, and on any issue, we are always ready and willing to listen to the people. We will certainly take their inputs,” she said. She was speaking at an event in Mumbai.
Her comments come amid increasing debate among investors and market participants over the impact of capital gains taxation on retail participation and overall market sentiment. With foreign institutional investors continuing to pull out of Indian stock markets, the finance minister’s statement assumes significance.
Analysts and equity market commentators have long blamed high taxes on capital gains as a reason for Indian stock markets becoming unattractive for overseas investors, who have net sold Indian stocks worth $25 billion in the calendar year so far.
India levies long-term capital gains tax (holding period more than one year) of 12.5% and short-term capital gains of 20%.
Meanwhile, the finance minister on Monday flagged that there are growing concerns over what she described as the ‘Three Fs’ — fuel, fertiliser and foreign exchange outgo on gold imports — saying all of them are exerting pressure on India’s external sector because payments have to be made in foreign currency.
During her address at the SIDBI Foundation Day Celebration, Sitharaman said: “High and very fluctuating international crude prices, unimaginable increase in the fertilizer prices, and high gold prices are creating some challenges on the external front. To put it in context, all the three payments will have to be in foreign exchange. There is no rupee trading there. We should please understand the context of these three Fs -- fuel, fertilizer and foreign exchange. And the (pressure on) foreign exchange is due to purchase of gold.”
While flagging the challenges, she said that India is no more in a position to be a fear-mongering nation and will take all possible measures to safeguard its citizens and businesses, asserting that the government was taking calibrated steps to manage inflation and protect economic stability.
Her comments came at a time when OMCs hiked fuel rates for a fourth time in a row on Monday, within 10 days. Since May 15, petrol and diesel prices have gone up by nearly 7% in India. At a time when Indian businesses including exporters are facing challenges due to rising fuel prices, she cautioned: “Geopolitical fragmentation is reshaping global supply chains. These are creating uncertainty in trade flows, raw material availability, and shipping costs.”
At a time of such volatility, she flagged that the government will incur a revenue loss of over Rs 1 lakh crore by cutting excise duty on petrol and diesel, a measure taken to shield consumers from the impact of the West Asia crisis.
“We are not allowing exports to take priority over domestic market needs merely because they earn foreign exchange,” she said, adding that the export duty was imposed to ensure supply stability for domestic consumers, airlines and businesses and to protect manufacturing supply chains.
Meanwhile, emphasising the evolving role of SIDBI, Sitharaman said that SIDBI’s role must now expand from being only a lender to becoming a market maker and risk-sharing partner for India’s MSME and startup ecosystem. She also underlined the importance of deepening the venture capital and debt market for startups to ensure that innovative enterprises receive patient, flexible and growth-oriented capital.
