India’s benchmark stock index BSE Sensex rose more than 700 points during the day, before settling nearly 2% higher. With little let-up in bad news on corporate earnings and the economy, let alone on global geo-political and economic tensions, the upsurge appears to have been powered largely by expectations that the government would exempt foreign portfolio investors (FPIs) from last month’s budget proposal to levy a higher tax in the form of a surcharge on the super rich. No such official announcement has been made yet, but reports surfaced today that New Delhi is considering a rollback.
The surcharge, levied on individuals with an annual income of ₹2 crore or more, also applied to FPIs registered in India as trusts. The government’s decision to levy such a surcharge worsened the risk appetite of investors, already reeling under all manner of global and domestic adversities. Analysts believe the proposal was among the factors behind the virtual stampede out of Indian equities seen since the budget was presented in Parliament. In July, foreign investors sold Indian equities worth ₹120 billion.
The surcharge was never a good idea to begin with, and its collections would not have amounted to much. Worse, the move signalled a degree of revenue-raising desperation, if not a somewhat reproachful attitude towards wealth. The government would do well to roll back the extra levy on FPIs, perhaps even on the super rich, some of whom have been tempted to relocate to less burdensome tax jurisdictions. In a globalized world, wealth and the wealthy do have options.