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The government's decision to exempt foreign institutional investors (FIIs) 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.
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)
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