The more you tax on capital, the less you receive, and it's a simple equation which holds for any country whether it's the US, China or India. India will become less attractive as an investment destination. This is going to hurt India overall in terms of sentiment.
[Transcripts of the interview from ET India below]
ET: Do you think foreign fund flows into the country may get impacted post the tax treaty?
JR: Foreign fund flows in the short-term may get impacted, but that's not relevant, the important thing is tax burden is negative for sentiments. People like to invest where they can get higher returns, but the more you tax, the less return comes. This makes doing business in India look unattractive.
ET: Most of the foreign portfolio managers currently have overweight rating on India. Do you think there is a possibility of divergence in money flows to other emerging markets?
JR: Foreign investors may look for alternative investment destinations in emerging markets as the cost of doing business in India will increase, which is not good for the country. India instead of opening up the economy is trying to close it down. India has unbelievable regulations and is still fighting with taxes, treaties, loopholes, etc. I would advise let the government open up the economy, and let the money come and go — this will attract more investments into the country. But, what is happening currently is that you are driving people away from making investments.
ET: Investment experts feel that the tax on capital gains will encourage long-term investments into the country. Do you agree?
JR: If India opens up the economy, currency and markets, you would attract lot more investments for the long term. But, regulations to control currency and markets will make India less attractive for investments. The government should provide level playing field for foreign investors. The NDA government is about to finish its two-year term in office.