Capital gains tax relief on G-secs to foreign investors will help finance current account deficit in FY27: CEA
ADVERTISEMENT
Chief Economic Advisor (CEA) V Anantha Nageswaran on Friday said tax relief on government securities to the foreign investors will help finance the current account deficit in the current financial year. Nageswaran said the measures announced by the Reserve bank of India too will lead to smooth funding of the CAD.
“Measures announced this morning will definitely help finance the current account deficit. That was the idea behind the move. Naturally when you look at the 2022-23 data, when the oil prices spiked in the wake of the Russia-Ukraine conflict and lasted for some six months, the CAD widened to 2% of GDP in the fiscal. So, this year we have to wait and see. There are large unknown unknowns. There is no point speculating where will CAD settle in FY27 at this point in time,” Nageswaran said while addressing a press conference on GDP data.
The government today issued an ordinance exempting investments made by foreign institutional investors (FIIs) in government securities from capital gains tax. The Ordinance will amend the Income Tax Act to provide the exemption. The exemption will be effective from April 1, 2026, and will remove taxes on interest income as well as gains arising from the transfer or redemption of government securities.
Earlier, the RBI also announced several policy measures to boost capital inflows into India. The RBI has expanded the Fully Accessible Route (FAR) for government securities by including all new issuances of 15-, 30- and 40-year tenor G-secs. This facility was earlier open only for a 10-year issuance.
“Certainly, the measures announced by the ministry of finance and the central bank are for smoother financing on the current account deficit,” Nageswaran added.
Nageswaran also said RBI's downward revision in FY27 growth forecast to 6.6% is fair. “There is no reason to second guess that. There is an upward risk to RBI's retail inflation forecast of 5.1% in the current fiscal. The domestic economy remains resilient in the first two months of FY27.
“Indian exports remain resilient in April. Merchandise exports were in double digits. So were services. Early indications for May show that export performance may remain strong despite disruption to global trade,” he added.
India's economy expanded 7.7% in FY26, accelerating from 7.1% in the previous fiscal year and slightly exceeding the 7.6% growth projected in the Second Advance Estimates, according to data released by the Ministry of Statistics and Programme Implementation (MoSPI) on Friday.