The Weekend Leader - Government hopeful on FPIs returning post-tax rollback

Government hopeful on FPIs returning post-tax rollback

New Delhi


The government is in a waiting mode to see the impact of its recent measures to reverse the economic slowdown and is hopeful of Foreign Portfolio Investors (FPIs) returning to the Indian equity market in September as net buyers following the withdrawal of the tax surcharge on FPIs, official sources said on Monday.

Withdrawal of the enhanced surcharge on FPIs is expected to reverse the outflows seen since announcement of the levy in July's Union Budget. The Budget proposal had spooked FPIS, who pulled out more than $3.4 billion (Rs 24,500 crore) from domestic equities during July and August. 

The massive capital outflows also put pressure on the rupee, which slumped last week to the 72-mark against the US dollar.

Foreign investors pulled out a net amount of Rs 5,900 crore from the Indian capital markets in August even as the government rolled back the enhanced surcharge on FPIs On August 23.

Finance Ministry sources said though the FPIs still have not turned net buyers after a week of the rollback announcement, they hope the hope the foreign investors will return in September, and before that there wouyld be more steps and clarity through the notification withdrawing the surcharge. 

The sources attribute the continuing outflow of FPI funds to weak investor sentiment owing to domestic and global concerns, poor corporate earnings.

A market participant, however, said that with India's GDP growth slowing to a 6-year low of 5 per cent, it is difficult that any FPI would look to the sunshine sectors. 

Morever, the announcement is yet to be notified, he said, adding however the withdrawal was a good and timely move. 

According to official sources, the government is considering the option of issuing a Presidential ordinance to change the rates effective April 2019. The amendment will then have to be approved in the winter session of Parliament.

After sustained petitioning by FPIs, the Finance Ministry, on August 23, said: "In order to encourage investment in the capital market, it has been decided to withdraw the enhanced surcharge levied by Finance (No 2) Act, 2019, on tax payable at special rate on income arising from the transfer of equity share/unit referred to in section 111A and section 112A of the Income-tax Act, 1961, from the current fiscal."

There have been two rounds of government announcments in August to boost the economy -- on FPI surcharge withdrawal, sops for the auto sector, the merger of 10 state-run banks into four units, and a Rs 52,250-crore capital infusion into state-owned lenders.IANS 

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