New Delhi is considering scrapping capital gains tax on foreign portfolio investors’ holdings in government securities, in a move aimed at attracting overseas capital as the Iran war unsettles global markets, sources cited in reports said.
The proposal comes as geopolitical tensions in West Asia have triggered concerns over oil prices, the rupee, capital outflows and investor appetite for emerging markets. India, which depends heavily on imported energy, is trying to cushion its economy from volatility while keeping its debt market attractive to global funds.
The reported tax relief would make Indian government bonds more competitive for foreign investors, especially after India’s inclusion in global bond indices increased overseas interest in rupee debt. Officials believe the move could deepen India’s bond market, support inflows and help stabilise financial conditions during a period of external uncertainty.
The Iran conflict has already raised worries about energy costs and supply chains. The World Bank has projected India’s FY27 growth at 6.6%, citing higher energy prices and supply disruptions linked to the Middle East conflict.
Analysts say the government’s broader objective is to turn global uncertainty into an investment opportunity. Morgan Stanley has estimated that India could attract an additional $800 billion in cumulative investments over five years, driven by manufacturing, defence, energy diversification and digital infrastructure.
However, the plan is still under consideration, and no official announcement has been made. If approved, it would mark one of India’s clearest attempts yet to use tax policy to pull in foreign capital at a time when the Iran war is reshaping global investment flows.
