Shailesh Vickram Singh

The Ambiguity Tax: Why a tax cut won’t bring foreign capital back In a recent column, Akash Prakash put net foreign portfolio investor (FPI) outflows from Indian equities since the September 2024 market peak at about $65 billion. Much of the chatter in the media and on social media reduces the explanation to taxation: long-term capital gains tax (LTCG), securities transaction tax (STT), this tax or that tax. The implied solution is equally simple: remove a levy and India will once again become the darling of global capital. A tax cut may change an allocation. It cannot, by itself, repair confidence in the rules. In 1961, Daniel Ellsberg described a choice between two urns. One held 50 red and 50 black balls. The other held 100 balls in an unknown mix. People often preferred to bet on the first urn, whichever colour they were asked to pick. Under the standard model, no single probability estimate for the second urn can justify both preferences. People place a value on knowing the odds. Indian regulation is the second urn. If India shines at anything, it is uncertainty and nightmare paperwork. Rules can change in the middle of an investment's life, and India's history includes retrospective changes as well, the 2012 Vodafone amendment being the best known. For a small fund or investment vehicle, even a new condition governing future contributions can disturb the economics on which money was originally raised. Past investments may remain untouched while the assumptions for the years ahead are rewritten. A single circular can reopen an entire investment thesis. An investor can model a known tax. It is far harder to model a liability that may emerge from a new interpretation of an old transaction. A business can budget for a clearly defined approval process. It struggles when it cannot tell which interpretation will prevail, or when a matter will be considered settled. Such uncertainty can lower the price investors are willing to pay, delay investment, or send capital elsewhere. And much of the ambiguity tax is paid per commitment, not per dollar. A fund of funds considering a $10 million allocation to India can face much of the same tax advice, legal analysis and committee work as one considering $100 million. The smaller cheque therefore carries a heavier burden. When counsel cannot establish how the rules will apply over the life of the fund, the committee may simply pass. The allocation never reaches the stage of negotiating terms. Even GIFT City, built to bring India funds home, is not immune. In October, Artha Bharat, which manages over $800 million there, said it would move two fund structures to Abu Dhabi Global Market, citing tax uncertainty, compliance burden and investor restrictions. That is Ellsberg's second urn, rebuilt inside the institution designed to remove it. Policy in India is designed for the big trees: sovereign funds, global houses and anchor investors who arrive with a battalion of lawyers. But a forest is not made of big trees alone. The grass, shrubs and saplings hold the soil, and without them even the big trees eventually fall. Capital works the same way. Small funds, funds of funds and first-time managers are where tomorrow's large investors and large companies grow. A regime that only the big trees can survive is not an ecosystem. It is a plantation. The hard truth is that investors and entrepreneurs are tired of Indian regulators: of ever-changing, ever-appearing rules and complete uncertainty. So if anyone thinks a tweak to this tax or that tax will reverse the flow of capital, it will not happen. We must remember that tinkering with tax rates does not change the mindset of an administration that defaults to uncertainty and ever-increasing paperwork. FPIs looking to exit at scale were caught in a bind: sell heavily without enough buyers, and their own selling would drive prices down and eat into their returns. Then came the surge of domestic money through SIPs. A steady stream of household savings supplied the buying power to absorb foreign selling, giving FPIs a golden opportunity to exit with less pressure on prices.That buying is a source of market resilience, but it also cushions policymakers from the consequences of investor dissatisfaction. Nobody can assume that households will keep up their SIPs through a prolonged period of disappointing returns. Their monthly contributions should not become an excuse to postpone examining why other investors are reducing their exposure. The same problem now reaches beyond investment into the ordinary business of earning foreign exchange. RBI's new export-declaration framework took effect on 1 October. On 7 October, RBI acknowledged misunderstandings over reporting obligations and clarified that individuals' contracts of a personal nature were outside the requirement. It said FAQs would clarify the position. Yet by 24 October, reports showed individuals and small businesses facing demands for export declaration forms and delays in having overseas service payments credited. SME industry bodies had also asked RBI to stop avoidable professional-certification demands for routine small-value transactions. A business that has completed its work and earned its money is left trying to establish what will satisfy the bank. That gap between the regulator’s explanation and the customer’s experience is the ambiguity tax in practice. It is high time the powers that be re-examined regulation. The lens should not be taxation, round-tripping and who is stealing, but how capital formation can happen and what fair play looks like for people trying to create capital. Almost every new rule now arrives labelled "ease of doing business". Most close one door and open three. The export declaration framework was meant to simplify. It did retire one form. It also brought many service exporters, who never needed a declaration before, under a new one. The bank already knows the money arrived, from whom, and why. So why is the form needed at all? Nobody seems to have asked that question before the rule was written. From the conditions attached to investment vehicles to the paperwork surrounding money already earned abroad, India's tax authorities, RBI and SEBI all leave investors with the same feeling: go away, go away, don't bring your money to India. It is not that India does not want capital. It treats all capital as dirty until proven clean, and so keeps adding layer upon layer of regulation. But policy should be judged by outcomes, not intentions. Judged that way, congratulations: the treatment has worked. So why the panic? We should celebrate. Policy rarely achieves its desired outcome. The operation was successful, though the patient is dead.

The Ambiguity Tax: Why a tax cut won’t bring foreign capital back In a recent column, Akash Prakash put net foreign portfolio investor (FPI) outflows from Indian equities since the September 2024 market peak at about $65 billion. Much of the chatter in the media and on social media reduces the explanation to taxation: long-term capital gains tax (LTCG), securities transaction tax (STT), this tax or that tax. The implied solution is equally simple: remove a levy and India will once again become the darling of global capital. A tax cut may change an allocation. It cannot, by itself, repair confidence in the rules. In 1961, Daniel Ellsberg described a choice between two urns. One held 50 red and 50 black balls. The other held 100 balls in an unknown mix. People often preferred to bet on the first urn, whichever colour they were asked to pick. Under the standard model, no single probability estimate for the second urn can justify both preferences. People place a value on knowing the odds. Indian regulation is the second urn. If India shines at anything, it is uncertainty and nightmare paperwork. Rules can change in the middle of an investment's life, and India's history includes retrospective changes as well, the 2012 Vodafone amendment being the best known. For a small fund or investment vehicle, even a new condition governing future contributions can disturb the economics on which money was originally raised. Past investments may remain untouched while the assumptions for the years ahead are rewritten. A single circular can reopen an entire investment thesis. An investor can model a known tax. It is far harder to model a liability that may emerge from a new interpretation of an old transaction. A business can budget for a clearly defined approval process. It struggles when it cannot tell which interpretation will prevail, or when a matter will be considered settled. Such uncertainty can lower the price investors are willing to pay, delay investment, or send capital elsewhere. And much of the ambiguity tax is paid per commitment, not per dollar. A fund of funds considering a $10 million allocation to India can face much of the same tax advice, legal analysis and committee work as one considering $100 million. The smaller cheque therefore carries a heavier burden. When counsel cannot establish how the rules will apply over the life of the fund, the committee may simply pass. The allocation never reaches the stage of negotiating terms. Even GIFT City, built to bring India funds home, is not immune. In October, Artha Bharat, which manages over $800 million there, said it would move two fund structures to Abu Dhabi Global Market, citing tax uncertainty, compliance burden and investor restrictions. That is Ellsberg's second urn, rebuilt inside the institution designed to remove it. Policy in India is designed for the big trees: sovereign funds, global houses and anchor investors who arrive with a battalion of lawyers. But a forest is not made of big trees alone. The grass, shrubs and saplings hold the soil, and without them even the big trees eventually fall. Capital works the same way. Small funds, funds of funds and first-time managers are where tomorrow's large investors and large companies grow. A regime that only the big trees can survive is not an ecosystem. It is a plantation. The hard truth is that investors and entrepreneurs are tired of Indian regulators: of ever-changing, ever-appearing rules and complete uncertainty. So if anyone thinks a tweak to this tax or that tax will reverse the flow of capital, it will not happen. We must remember that tinkering with tax rates does not change the mindset of an administration that defaults to uncertainty and ever-increasing paperwork. FPIs looking to exit at scale were caught in a bind: sell heavily without enough buyers, and their own selling would drive prices down and eat into their returns. Then came the surge of domestic money through SIPs. A steady stream of household savings supplied the buying power to absorb foreign selling, giving FPIs a golden opportunity to exit with less pressure on prices.That buying is a source of market resilience, but it also cushions policymakers from the consequences of investor dissatisfaction. Nobody can assume that households will keep up their SIPs through a prolonged period of disappointing returns. Their monthly contributions should not become an excuse to postpone examining why other investors are reducing their exposure. The same problem now reaches beyond investment into the ordinary business of earning foreign exchange. RBI's new export-declaration framework took effect on 1 October. On 7 October, RBI acknowledged misunderstandings over reporting obligations and clarified that individuals' contracts of a personal nature were outside the requirement. It said FAQs would clarify the position. Yet by 24 October, reports showed individuals and small businesses facing demands for export declaration forms and delays in having overseas service payments credited. SME industry bodies had also asked RBI to stop avoidable professional-certification demands for routine small-value transactions. A business that has completed its work and earned its money is left trying to establish what will satisfy the bank. That gap between the regulator’s explanation and the customer’s experience is the ambiguity tax in practice. It is high time the powers that be re-examined regulation. The lens should not be taxation, round-tripping and who is stealing, but how capital formation can happen and what fair play looks like for people trying to create capital. Almost every new rule now arrives labelled "ease of doing business". Most close one door and open three. The export declaration framework was meant to simplify. It did retire one form. It also brought many service exporters, who never needed a declaration before, under a new one. The bank already knows the money arrived, from whom, and why. So why is the form needed at all? Nobody seems to have asked that question before the rule was written. From the conditions attached to investment vehicles to the paperwork surrounding money already earned abroad, India's tax authorities, RBI and SEBI all leave investors with the same feeling: go away, go away, don't bring your money to India. It is not that India does not want capital. It treats all capital as dirty until proven clean, and so keeps adding layer upon layer of regulation. But policy should be judged by outcomes, not intentions. Judged that way, congratulations: the treatment has worked. So why the panic? We should celebrate. Policy rarely achieves its desired outcome. The operation was successful, though the patient is dead.

Nearly all major forecasters, including the IMF, ADB and World Bank, have recently raised their growth forecasts for India to above 7% for this year AND next. Remarkable in itself - even more so when viewed against India’s recent performance. (1/n)

How a civilisational nation can be destroyed without defeating its army! Critical lesson for Indians in these times from Douglas Kruger, who uses Poland in this case study:

India has $735bn in forex reserves. The RBI can use far less of it. Nearly $200bn is owed back on forward contracts. Take that and gold out, and usable reserves are about $432bn. That covers about 5 months of imports, the lowest since 2011. This week's measures, a dollar window for oil companies and curbs on hedging, are paid for from the same pile. Two tools are left: a sharp rate hike, or an LRS cut. In 2013, LRS went from $200,000 to $75,000. Source: Ambit Capital Note, 14 Oct 2026

#IndiaWatch🇮🇳: India's money supply (M3) is EXPLODING. It's growing at 17.3%/yr. The 6-month annualized rate is 20.2%. The 3-month annualized rate is 31.5%. THIS SPELLS TROUBLE. Hanke's Golden Growth Rate for M3 is 10.2%/yr, a rate consistent with hitting India's 4% inflation target. IT'S NO SURPRISE THAT INFLATION IS SURGING AND IS WELL ABOVE THE TARGET. THE RBI = LOSING CONTROL.