Government Plans to Enhance Foreign Investment Amid Economic Challenges

Measures to Support Foreign Capital Inflows

Recent reports indicate that the government is expected to unveil strategies within the next week aimed at increasing foreign capital inflows. This initiative is designed to bolster the weakening rupee and address the growing current account deficit. Among the proposals being considered is a potential reduction in long-term capital gains tax applicable to equities and government bonds, along with a decrease in the withholding tax on interest income earned by foreign investors. Additionally, there may be a temporary reassessment of the annual limit under the Liberalised Remittance Scheme.

Furthermore, the Reserve Bank of India and the Securities and Exchange Board of India are reportedly exploring various options to facilitate smoother entry and exit for foreign investors in capital markets through regulatory adjustments. Policymakers are also contemplating other financial and non-financial reforms to enhance the investment climate.

Commerce Minister Piyush Goyal recently emphasized that India is vigilantly monitoring trends in the external sector and assessing different measures to mitigate any significant concerns regarding the current account deficit. His remarks come at a time when the rupee is under increasing pressure, compounded by an unpredictable global trade landscape. He noted that multiple government departments are collaborating to devise effective solutions to tackle the economic challenges posed by volatile global conditions.

In 2026, foreign portfolio investors have withdrawn approximately 2.2 lakh crore rupees, largely influenced by the ongoing conflict in West Asia and soaring crude oil prices. March marked a particularly severe sell-off, with FPIs pulling out nearly 1.17 lakh crore rupees following escalating tensions in West Asia and Brent Crude prices surpassing 100 dollars per barrel.