The Indian government scrapped capital gains and withholding tax on investments by Foreign Institutional Investors (FIIs) in government bonds to attract foreign capital and address a balance of payments deficit
GS3Economy · S&T · Environment · Security· Monetary policy, RBI & banking· Prelims + Mains·
Why in news
The Indian government scrapped capital gains and withholding tax on investments by Foreign Institutional Investors (FIIs) in government bonds to attract foreign capital and address a balance of payments deficit.
Background
The government removed capital gains and withholding tax for FIIs investing in government bonds. Simultaneously, the RBI eased norms for state-owned enterprises and banks to borrow from overseas markets.
Facts for Prelims
- FactFII: Foreign Institutional Investors are entities that invest in financial assets like government bonds.
- FactRBI: The Reserve Bank of India eased norms for state-owned enterprises and banks to borrow overseas.
- FactTax Exemption: The government scrapped capital gains and withholding tax specifically for FII investments in government bonds.
For Mains
Q. Analyze the significance of fiscal incentives and regulatory easing in attracting Foreign Institutional Investment (FII) to stabilize the balance of payments and the Indian Rupee.
Dimensions to cover in your answer
- Macroeconomic stability: Using FII inflows to mitigate balance of payments deficits and stabilize currency volatility.
- Regulatory liberalization: Balancing the risks of overseas borrowing for state-owned enterprises against the need for capital liquidity.
Keywords: Balance of Payments · Capital Gains Tax · Foreign Institutional Investors · Fiscal Incentives · Currency Stabilization
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