Cut capital-gains tax to improve equity returns: ISB professor on what can help rupee
Persistent foreign portfolio investor outflows remained the main problem facing the rupee, says Prasanna Tantri
- Sep 23, 2026,
- Updated Sep 23, 2026 1:53 PM IST
The government should consider cutting capital-gains tax to improve equity returns and raising interest rates to make rupee-denominated debt more attractive, according to Prasanna Tantri, associate professor of finance at the Indian School of Business (ISB).
Tantri said persistent foreign portfolio investor (FPI) outflows remained the main problem facing the rupee. Despite measures to contain the pressure, the outflows have resumed in September.
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By September 21, FPIs had withdrawn ₹17,235 crore from equities and ₹10,272 crore from debt, he said. The equity outflows reversed the inflows seen in July and August, while debt flows shifted from substantial inflows in June and July to a small outflow in August and heavy selling in September.
The rupee settled at ₹95.59 against the US dollar on September 22, gaining about 0.2% from the previous close of around ₹95.82. It had weakened about 0.3% on September 18, ending at ₹95.8725 per dollar.
Why FPIs are pulling out
Tantri said September's debt outflow of ₹10,272 crore was already close to the April 2026 high of ₹10,826 crore. "At the present pace, September will exceed it," he said.
Low relative real interest rates are reducing the appeal of Indian debt, the professor said. Recent rate increases in the US, euro area, and Japan have further narrowed India's relative yield advantage.
For equity investors, he added, the key factor is expected future growth rather than simply high growth today.
"Much of India's current growth comes from correcting past misallocation of resources and removing old bottlenecks," Tantri said. "That is valuable, but it can take us only so far."
India, he said, needs to be seen leading in sunrise sectors, competing successfully in high technology, and winning internationally.
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FDI Offers A Positive
One positive is net foreign direct investment, the finance professor highlighted.
At about $7.8 billion during April-June 2026, net FDI has already marginally exceeded the $7.7 billion recorded during the whole of FY2025-26.
In the short term, Tantri said, India should consider capital-gains tax cuts to improve equity returns and higher interest rates to restore the attractiveness of rupee debt. "In the long run, industrial policy must focus squarely on making India a global leader in high-technology and other sunrise sectors."
The government should consider cutting capital-gains tax to improve equity returns and raising interest rates to make rupee-denominated debt more attractive, according to Prasanna Tantri, associate professor of finance at the Indian School of Business (ISB).
Tantri said persistent foreign portfolio investor (FPI) outflows remained the main problem facing the rupee. Despite measures to contain the pressure, the outflows have resumed in September.
In Case You Missed It: BT Big Story: How the FCNR(B) deluge has created two new problems for the RBI
By September 21, FPIs had withdrawn ₹17,235 crore from equities and ₹10,272 crore from debt, he said. The equity outflows reversed the inflows seen in July and August, while debt flows shifted from substantial inflows in June and July to a small outflow in August and heavy selling in September.
The rupee settled at ₹95.59 against the US dollar on September 22, gaining about 0.2% from the previous close of around ₹95.82. It had weakened about 0.3% on September 18, ending at ₹95.8725 per dollar.
Why FPIs are pulling out
Tantri said September's debt outflow of ₹10,272 crore was already close to the April 2026 high of ₹10,826 crore. "At the present pace, September will exceed it," he said.
Low relative real interest rates are reducing the appeal of Indian debt, the professor said. Recent rate increases in the US, euro area, and Japan have further narrowed India's relative yield advantage.
For equity investors, he added, the key factor is expected future growth rather than simply high growth today.
"Much of India's current growth comes from correcting past misallocation of resources and removing old bottlenecks," Tantri said. "That is valuable, but it can take us only so far."
India, he said, needs to be seen leading in sunrise sectors, competing successfully in high technology, and winning internationally.
Must Watch: Crude Oil Above $100: How High Energy Prices And Rupee Weakness Impact Gold Prices In India
FDI Offers A Positive
One positive is net foreign direct investment, the finance professor highlighted.
At about $7.8 billion during April-June 2026, net FDI has already marginally exceeded the $7.7 billion recorded during the whole of FY2025-26.
In the short term, Tantri said, India should consider capital-gains tax cuts to improve equity returns and higher interest rates to restore the attractiveness of rupee debt. "In the long run, industrial policy must focus squarely on making India a global leader in high-technology and other sunrise sectors."