Mohandas Pai Calls for Capital Gains Tax Waiver as Rupee Faces FPI Selloff

Former Infosys CFO T.V. Mohandas Pai has proposed waiving capital gains tax for foreign portfolio investors as the Indian rupee faces intense pressure from sustained FPI outflows. Pai warned that the rupee is getting "hammered" due to a massive dollar drain driven by aggressive FPI selling, which in turn escalates domestic costs and threatens to compound India's economic challenges.

The proposal comes at a critical juncture for Indian markets, where foreign institutional investors have been net sellers for extended periods, putting downward pressure on both equity valuations and currency stability. The dual impact of FPI exits—depleting dollar reserves while simultaneously weakening the rupee—creates a feedback loop that makes Indian assets less attractive to international investors. Pai's suggestion aims to reverse this trend by improving after-tax returns for foreign capital, potentially stemming the outflow tide.

For investors, the key question is whether policy intervention can stabilize sentiment before technical damage becomes entrenched. A capital gains tax waiver would represent a significant fiscal concession, but could prove necessary if authorities view currency stability as paramount. Market participants should monitor both Finance Ministry commentary on tax policy flexibility and RBI intervention patterns in currency markets, as coordinated action on both fronts would signal serious concern about the rupee's trajectory and willingness to deploy unconventional measures to attract foreign capital back to Indian shores.