How can India attract more FPIs? Mohandas Pai lists his big 5-year formula

Padma Shri awardee market veteran Mohandas Pai has called for a five-year tax relief framework for foreign portfolio investors (FPIs), saying it could help attract more overseas capital, support the rupee and strengthen India's investment climate.

Speaking in an interview with Zee Business Managing Editor Anil Singhvi, Pai said India needs urgent measures to reduce dollar outflows and increase foreign investments at a time when the rupee is facing pressure due to higher crude oil and gold imports.

According to Pai, one of the biggest concerns for foreign investors is the combination of currency depreciation, tax-related disputes and policy uncertainty.

“Any overseas investor investing in India faces three risks. The first is currency depreciation. The second is tax-related issues and notices. The third is policy uncertainty,” Pai said.

Five-year tax relief for FPIs

Pai proposed that the government should provide capital gains tax relief for FPIs bringing fresh money into India over the next five years.

He said investors who bring capital into Indian markets and hold investments for a longer period should get tax certainty and incentives.

“We have suggested that for the next five years, money brought into India by FPIs should get capital gains tax relief. This can encourage more long-term investment and reduce the pressure of capital outflows,” Pai said.

He argued that lower tax uncertainty would make India more attractive compared with other emerging markets competing for global capital.

Pai said foreign investors not only consider returns but also assess regulatory and taxation risks before allocating money. “Investors want certainty. They do not want long tax disputes or frequent policy changes,” he said.

Why Pai believes more foreign money is needed

Pai noted that India faces significant pressure on its external accounts due to large imports of crude oil and gold. He said rising oil prices and strong gold demand increase dollar outflows from the country, which in turn puts pressure on the rupee.

To offset these outflows, India needs higher inflows through exports, foreign investments and long-term capital. According to Pai, attracting more FPI investments can play an important role in balancing foreign exchange flows.

He said market valuations have corrected in many sectors, and this could create an opportunity to attract fresh overseas capital if the policy environment becomes more investor-friendly.

Easier investment process required

Apart from tax relief, Pai called for simplifying investment procedures for overseas investors. He said many foreign investors face lengthy documentation requirements, KYC procedures and operational hurdles while investing in India.

“Bringing money into India should become easier. Documentation and approval processes should be simplified,” Pai said. He suggested that depositories could handle much of the documentation process, making investment onboarding faster and more efficient.

According to him, reducing administrative complexity would improve India's ease of doing business and encourage larger foreign participation.

Sovereign wealth funds should get more incentives

Pai also urged the government to attract more long-term institutional investors such as sovereign wealth funds. He said funds from countries such as Norway and Abu Dhabi typically invest with a long-term perspective and can provide stable capital.

“These investors stay invested for longer periods and can support large-scale economic growth,” Pai said. He suggested expanding tax incentives and making investment rules simpler for such institutions.

NRI investments should be simplified

Pai said non-resident Indians (NRIs) also face unnecessary procedural challenges while investing in India. He called for a simpler framework that would allow NRIs to invest more easily in Indian financial markets and businesses.

According to him, easier processes could unlock additional overseas capital from the Indian diaspora.

Exports remain critical

While discussing ways to bring more dollars into the country, Pai stressed that exports remain the most sustainable solution. He said Indian companies should focus on expanding their global presence and increasing exports.

Pai argued that greater competition within India would improve efficiency and help domestic companies become stronger exporters. “Exports have to increase. India needs to strengthen its competitiveness and encourage companies to sell more globally,” he said.

Broader reforms needed

Pai also called for wider economic reforms to improve investor confidence. He said India should continue reducing unnecessary approvals and regulatory hurdles.

According to him, multiple permissions and long approval timelines often delay investments and increase costs. He said reforms in taxation, regulations and ease of doing business would make India a more attractive destination for global capital.

Focus on long-term capital

Pai's overall message was that India should focus on attracting stable, long-term foreign capital rather than relying only on short-term market flows. He said a combination of tax certainty, easier investment procedures, stronger exports and policy stability can help improve foreign investor confidence.

“The objective should be to bring more investment into India and reduce barriers. More investment means more capital, more growth and stronger economic activity,” Pai said.

With concerns around the rupee, trade deficit and global uncertainties continuing to dominate discussions, Pai believes a five-year tax relief framework for FPIs could become an important tool for boosting foreign investment and strengthening India's economic position.