Helios Capital founder Samir Arora’s proposal to scrap long-term capital gains (LTCG) tax in India has sparked a war on words with Rajeev Mantri, managing director of venture investment firm Navam Capital, who strongly opposed it, calling it a ‘laughable idea’. Arora began the discussion saying that even though gross foreign direct investment (FDI) is $71 billion, the net FDI is only 10.6 billion and ‘’this is bad for medium term growth prospects”.
My guess is that large repatriations are due to selling by PE funds and this problem will become worse if India prefers PE over FII funds. If PE funds invest US$ 50 billion now, they will expect to take out $ 100 billion in approx seven yrs and so on till it becomes unsustainable.
Better to attract real FDI money (which only takes out dividends of say 2% p.a. and reinvests the balance) or FII (which broadly remains invested over time and even redemptions are not bunched too much on general).
Attracting FII money requires the least amount of effort or policy changes- just relax capital gains taxes. That will also help domestic investors, attract risk taking money, allow govt to raise good money from PSU divestments, collect money from higher STT collections etc.
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Published: 24 May 2024, 07:44 PM IST
