Tax relief on govt securities to boost foreign inflows, aid India's inclusion in global bond indices: ED, World Bank
New Delhi, June 5
The government's decision to exempt foreign institutional investors from taxes on interest income and capital gains from Indian Government Securities is expected to boost foreign capital inflows and help stabilise market sentiment, according to Neelkanth Mishra, Executive Director for India at the World Bank Headquarters.
In an exclusive interview with ANI, Mishra said the measure is important not only because it can attract investments, but also because it can help ease concerns in the currency market.
"I think more than the investment itself. See, what we have to understand is that the currency market was in a state of panic.... we have seen that the demand for dollars was way higher than what our balance of payment deficit was " he said when asked whether the tax exemption could trigger foreign inflows.
According to Mishra, between October 2025 and March 2026, the balance of payments deficit on an accrual basis was around USD 24 billion, while RBI intervention in the foreign exchange market amounted to USD 75 billion.
He said the situation emerged because importers increased hedging activity amid expectations of further weakness in the rupee, while some investors also sought to move money outside the country.
"The only way to stem this panic is to show visibility that there are a lot of dollars coming," Mishra said.
According to him, the government's decision could accelerate India's inclusion in major global bond indices and improve investor confidence.
He noted that in 2019, the Bloomberg Global Aggregate Index and the FTSE index together had around USD 4.5 trillion of assets benchmarked to them.
"At even a 1 per cent inclusion rate, this means USD 45-50 billion that can come in," he said.
Mishra added that these inflows may not happen immediately, but the visibility of future inflows itself would be a major positive for markets.
Commenting on the impact on the rupee, he said the measure should help reduce pressure on the currency, although additional factors such as crude oil prices will remain important.
"It should help. I'm not sure this will be sufficient, but it's a necessary and very important input," he said.
According to Mishra, if crude oil prices decline to USD 80 per barrel by coming March, in line with current market expectations, pressure on India's balance of payments would be significantly lower.
However, if oil prices remain around USD 100 per barrel, additional adjustment in the rupee may still be required.
He said the government's objective is effectively to reassure markets that sufficient foreign exchange inflows are available.
According to Mishra, the government's latest move is therefore an important step towards attracting foreign capital, improving visibility on future dollar inflows and reducing pressure on both the rupee and broader financial markets.
— ANI
Reader Comments
Interesting perspective from the World Bank ED. But I wonder if this will really work without addressing underlying issues like oil prices and trade deficits. The panic in the currency market seems more structural than just a visibility problem.
Finally some meaningful reform! The $24 billion deficit vs $75 billion RBI intervention shows how scared the market was. This tax exemption is a smart psychological play - making investors feel confident about coming in.
Sir, bas itna samajh mein aaya ki dollar ki demand bahut badh gayi thi. Tax exemption se kuch rahat milegi. But crude oil prices par bhi dhyan dena padega - agar $100 per barrel reh gaya to rupee aur gir sakta hai. Common aadmi ke liye imported goods expensive ho jayenge.
This is a smart step toward global bond index inclusion. $45-50 billion potential inflow is huge. But I'm cautious - visibility of dollars doesn't always translate to actual dollars. India needs to keep pushing reforms.
Good initiative but I'm a bit skeptical. We've seen such announcements before - foreign investors want more than just tax breaks. They need stable policies, easy exit norms, and strong governance. Let's see how this plays out in the next quarter.
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