Roll out red carpet for dollar, make capital gains tax zero: Shankar Sharma

Shankar Sharma, founder of GQuant Investech, has said that the government has been very arrogant towards foreign capital and suggested rolling out the red carpet for dollars, no matter what it involves. During a conversation with AK Bhattacharya at the Smart Arena segment of the Business Standard BFSI Insight Summit 2026 on Wednesday, he also called for making long-term capital gains tax zero for foreign investors. Edited excerpts:

Most mutual funds do better when they are smaller. When you become large, you become the market itself, and then you more or less approximate market returns. And then the question becomes: Are those market returns consistent? Are they lumpy? Are they sporadic? The answer is that they are more sporadic than consistent. What happens is you are promised a certain return, and it might happen over a very long period of time. But remember that the market doesn't owe you a return of any kind.

What is long term itself is highly debatable. Nobody in the world has guaranteed that even after the long term, I can harvest the returns. If I have to keep investing for 20 years with absolutely no guarantee of getting anything close to even fixed deposit rates, is that something that a low-income country can afford? So, my abiding belief has been that equities are for richer countries or richer people within poorer countries because they have something crucial called staying power.

The average SIP and the stoppage ratios tell you that you don't have staying power, and equity investments test your staying power. They will test you every single day in no way that an FD tests you. 

In developing countries, the cost of capital is usually higher than that in developed countries. Therefore, your hurdle rate has to be higher for a riskier asset like equity. For a developing country to deliver that consistently is simply not possible. This is a zero-sum game. If I give you 14 per cent, I have to generate something like 20-25 per cent. Businesses in developing markets generally do not reach that size and scale consistently because they are generally of lower quality. India, by the way, is better than most others.

Equity is good for a much smaller percentage of the population. For them, it is very good for a variety of reasons, not least because they have staying power. They also have better access to better advice. You pay for good advice, and you can attract the best of the best because you have the capital to give to them. The small guy with his Rs 10,000 cheque is not able to get that access, and it becomes a commoditised product where you get commodity-level returns, if at all. So, unfortunately, it's not a level playing field. READ MORE: Money best way to buy your freedom; gain choices in life: Ankur Warikoo

If not equity, what investment areas are available in a developing market like India? The government, through policy, represses your investment choices and directs those choices towards a certain area based on taxation, duties, policies and stuff like that. Gold has been the favoured investment tool for Indians for centuries, and nobody can argue that it has not worked. But now look at the financial repression. The government has, over decades, tried to figure out how to stop or curtail gold imports, with this government more aggressive than previous ones.

In fixed income, nobody believes that our inflation rates are what they are at the household level. The lived experience of inflation is a lot higher than the headlines. Actual data points to a far higher number than what your fixed-income instruments give you. So, you have negative real rates of return on fixed income.

Our rupee was about 80-82 a couple of years back. Today, it is at 96, roughly a 20 per cent fall. Our bond yields used to be at 6.8 per cent. Today, they have barely reached 7.4 per cent. How on earth does this equation hold: when your currency is down 20 per cent and your bond yields have been held down? In my view, they have been artificially held down because the RBI can control bond markets more than it can control currency markets or equity markets, as this is a more local and less globalised market.

You have held the rates down, but in the process, those rates end up delivering negative real rates of return for savers. So, gold is curtailed, and fixed income gives you negative real rates of return. That is financial repression, when the government, through policy, directs you towards the riskiest end of the market, which is equity markets. You repress my logical choices and push me towards choices that are actually not good for me as a householder.

I would have created instruments through which I could get at least some positive carry over inflation. There can be some instruments within fixed income itself, some categories of fixed income, where I can make at least maybe 1-2 per cent more than the headline rates of inflation. That would have been one way to keep savings from flowing into the riskier ends of the market. READ MORE: Investor education must explain why beating benchmarks is tough: Experts

What has happened post-COVID is that the youth started getting into the riskiest end, and the government incentivised it further by preventing people from getting into other instruments. In my view, a better real rate of return on fixed income gives Indians at least some predictability of income. In my view, return on capital is less important than return of capital. So, my view is that taxation rates on fixed income should be reduced and fixed income should be incentivised rather than equity investing. It is not right for a low-income country like India.

Let's move policy towards more predictable income. I think it will also help the country's macroeconomy. When people have predictability, they spend more. When they don't have predictability, they spend less.

India needs dollar capital. We need to incentivise foreigners to come, but we don't necessarily need to incentivise locals to come to the stock market. Today, we have put them on an equal footing. In my view, that is incorrect. In my view, foreigners should pay zero.

A saver is not interested in your macroeconomic problem. I have put you in power to solve problems, not to create problems for me. In my view, you are better off allowing that and having a good store of value that appreciates over decades, rather than driving that money into a more volatile asset class like equity markets. It's all about taxation policies and duties. Mutual funds have resulted in a $60 billion outflow in the last two years. Gold accounts for about $80 billion. So, there is not much to choose between them. People borrow against gold; it is like an LIC policy. READ MORE: Mutual fund returns dip? Here's why experts say don't switch in a hurry

If the curves are because we are bleeding forex, the same is happening through the mutual fund route as well. Why has equity become such a holy cow? I know why it has become so. It has a more vocal constituency. Everybody has an interest in propagating equity.

In my view, we have a problem that is basically an imbalance in trade and current account flows. Gold should be taken out of the current account and put into the capital account because, technically, it is a capital transaction. The fact of the matter is that until we have a current account solution, the rest of the problems will persist.

If you have even a 1 per cent current account surplus, which will give us $20 billion in extra cash every year, we will then begin to see solutions emerging. The core issue is the current account problem, which then leads to a desire for excess dollars in the capital account. If those dollars do not come in, or if we have net FDI collapsing, we have a balance of payments problem. We have an impossible trinity right now. You are trying to manage exchange rates, capital flows and interest rates. All three cannot be managed at the same time. 

I do believe that, as a government, we have been very arrogant with foreign capital. When you run a current account deficit, the first order of the day is that you have to roll out the red carpet for dollars. It is a basic, undeniable fact. Instead of that, we have kept putting roadblock after roadblock in place. Capital gains tax is only one factor. No matter what it involves, reduce taxes. Do global roadshows. Give them special vehicles. Do something that tells them ' this is a knife through butter entry into India.' Capital will come. Once you have capital coming in, you get some breathing time to fix your current account problem. Today, we have a current account deficit and a balance of payments problem, both occurring simultaneously. READ MORE: Growth momentum holds despite shocks: RBI Deputy Guv Poonam Gupta

I invest across the world, and I pay zero per cent capital gains tax. This is in the US, which has no shortage of capital. They have zero per cent capital gains tax for foreigners. Why does a poor country with a dollar deficiency have that tax? They tax domestic investors because they need capital. America is the smartest country in the world, and not without reason. If I have the world's capital, I can squeeze them whenever I want. If the richest country in the world has this policy, why not India? It gives advantage to dollar capital providers. If the US wants dollar capital to come in, who are we to say we won't follow a similar policy? We need dollars more than America does. For America, the dollar is a commodity. Ours is not.