SBI Research urges tax clarity on G-Secs, ECB rules to deepen domestic borrowing markets

SBI Research has called for greater tax clarity on government securities (G-secs) and clearer rules for external commercial borrowings (ECBs), saying further policy measures could deepen domestic borrowing avenues and help support capital flows amid persistent pressure on India’s balance of payments.

In its Ecowrap report dated October 15, the research arm of State Bank of India said the rupee could remain in appreciating territory, but global financial turbulence and continuing capital-account deficits leave little room for complacency. It said the Reserve Bank of India (RBI) had taken steps to stabilise market conditions, while the government now needs to address structural frictions that may affect investment and funding decisions.

SBI Research said greater clarity on taxation relating to G-secs, ECB rules and AI policy could help deepen domestic borrowing avenues and support capital flows.

Policy clarity and borrowing options

The report did not detail specific tax changes or proposed amendments to ECB rules. Its broader recommendation is that policy uncertainty should be reduced to improve the environment for domestic borrowing and capital inflows. Clearer rules could help businesses and investors assess funding options, although the report did not quantify the likely effect of any changes.

SBI Research also called for a credible, time-bound roadmap for artificial intelligence covering data governance, accountability, compliance and infrastructure. It said predictable rules would be important to attract investment into India’s AI ecosystem as competition for technology-related capital intensifies.

Capital-account pressures

The report highlighted a change in India’s balance-of-payments position. While earlier episodes of sharp rupee depreciation were largely associated with pressure on the current account, capital-account deficits have become persistent since December 2024, it said. SBI Research argued that managing the rupee now requires attention to vulnerabilities in both accounts.

Combined overseas direct investment debt and equity outflows rose to $27.2 billion in FY25 and $27.8 billion in FY26, compared with $13.4 billion and $13.7 billion in the preceding two financial years, respectively. The report also urged closer scrutiny of non-essential overseas remittances under the Liberalised Remittance Scheme to conserve foreign exchange.

Global bond-market conditions add to the uncertainty. The US 10-year Treasury yield briefly crossed 5.32% on October 14 after higher-than-expected US inflation data, before easing to around 5.19%. India’s 10-year government bond yield stood at about 7.38%, and SBI Research said it could touch 7.6%.

The report said policy action on taxation, ECB rules, overseas investment and AI could help strengthen capital flows. These are recommendations from SBI Research, rather than announced government measures.