Chief Economic Advisor Nageswaran Says Equity Tax Changes Hurt Bonds More Than Stocks

V. Anantha Nageswaran, the Chief Economic Advisor to the Govt of India has defended the government’s recent changes to capital gains taxation. He said that higher taxes on bonds are likely to have a stronger negative effect on prices than similar changes for equities.

At an event in Mumbai on June 12, 2026, Nageswaran said the case for expecting equity markets to weaken sharply after the tax revisions is “weaker” because stock prices are influenced by many factors beyond taxation, including earnings growth, liquidity, and investor sentiment.

The comments come after India revised the taxation framework for capital gains last year. The government increased the tax rate on short-term capital gains (STCG) from equities and raised the long-term capital gains (LTCG)  tax, while also removing indexation benefits for certain debt investments. The changes drew criticism from parts of the investment industry, which warned they could reduce retail participation in financial markets.

Nageswaran said that debt instruments are more directly linked to after-tax returns because their payouts are relatively fixed. The net return to investors falls in a more predictable way when taxes are raised, putting downward pressure on bond prices. Equities, by contrast, represent claims on future profits that can grow over time, making them less sensitive to tax changes alone.

He also said India’s equity markets continue to benefit from strong domestic participation, especially through systematic investment plans (SIPs) and long-term household savings flows. These structural factors may offset any short-term reaction to the tax changes, he said.

The broader tax overhaul was part of the government’s effort to simplify the capital gains regime and reduce distortions between different asset classes. Under the revised rules, LTCGs on listed equities are taxed at 12.50 per cent, up from 10 per cent, while STCG is taxed at 20 per cent, up from 15 per cent. For many debt investments, gains are now taxed at the investor’s income-tax slab rate without indexation benefits.

The market reaction to the changes was mixed. Equity indices recovered after an initial dip, while some fixed-income products became less attractive relative to equities and bank deposits. Analysts noted that investor behaviour would depend not only on tax rates, but also on interest rates, inflation, and expected corporate earnings growth.

Nageswaran added that the government’s macroeconomic focus remains on sustaining growth, improving productivity, and encouraging long-term investment rather than managing short-term market moves.