India plans tax cuts to attract foreign bond buyers

India is reportedly poised to announce a suite of measures aimed at attracting foreign capital into its bond market, including significant tax reductions and the removal of ownership caps on certain bonds. These steps are expected as early as this week, with the cabinet considering a substantial cut to the 20% tax on bond interest income, potentially reducing it to a minimal level or eliminating it entirely. The Reserve Bank of India is also expected to designate some long-tenor sovereign notes as 'fully accessible,' allowing overseas investors unlimited access. These measures come as the Indian rupee has hit an all-time low of 96.9650 against the dollar, capping a year where it became the second-worst-performing currency in Asia. The government has also implored citizens to conserve foreign exchange, echoing measures taken in 2013 during a previous currency crisis. The rupee has since recovered slightly from its low, partly due to central bank support and easing oil prices. Markets are viewing the prospect of tax-cut-fueled inflows as a potential salvation, similar to the reaction to JPMorgan index inclusion previously, which was followed by a significant bond selloff when the currency wobbled. India is also set to eliminate capital gains tax for foreign portfolio investors on government securities, approved via an ordinance, aiming to counter economic impacts from the Iran war and address negative foreign portfolio flows and rupee depreciation.