The Biden administration is coming with new ways to tax people under the Secretary of Treasury, Janet Yellen. As per reports, Yellen has plans to increase taxes on capital gains – which are already around 37 per cent – as well as new taxes on unrealized income through stock ownership. So far, only the sale of stocks was liable to taxation but now even if the value of the stock goes northwards, it will be taxed, said Yellen in a web conference hosted by The New York Times. For example, if the value of a stock increases from 20 dollars to 30 dollars, the 10 dollar profit made on the stock would be taxed.
According to analysts, this move by the Biden administration would bring billions of dollars to emerging markets like India and China, and make the American stock market less attractive. “I think that would hit sentiment. It would obviously make it less attractive to be an investor, all things being equal,” said Howard Marks, the legendary investor and chairman of Oaktree Capital which has more than 140 billion dollars of assets under management.
Asset Management Companies like Creative Planning, which has more than 70 billion dollars under management, are already looking to diversify the portfolio with increased investment in developing markets. “Creative Planning clients are holding 20% to 40% of their portfolios in foreign stocks, both emerging markets, and developed markets, tilting toward the latter,” said Peter Mallouk, the chief executive officer of Creative Planning.
In the last six months, foreign institutional investors have poured 20 billion dollars into Indian companies. Since the country started phased opening, foreign investment, direct as well as institutional, has increased exponentially.
As per the data from the Department of Promotion of Industry and Internal Trade (DPIIT), India has broken all records of Foreign Direct Investment in the first half of the ongoing fiscal year with a total investment of 39.6 billion dollars. The country has received an FDI of 11.5 billion dollars in the first quarter (April-June) of FY 21 and 28.1 billion dollars in the second quarter (July-September).
In the last six years of the Modi government, the FDI in India has grown consistently, and, this year, it is expected to touch a new high. In the first half of the ongoing fiscal year, the tech companies were on a bull run with Reliance Jio and BYJU’s leading the market.
Comparing the relation between FDI growth rate and the GDP, one realizes that ‘Every 1% increase in Foreign Direct Investment results in about 0.4-0.5% increase in GDP’, though it depends on the country’s development stage heavily’. Thus, huge investment from capital-rich countries is vital to attain double-digit economic growth in the coming years.
The leftist economic policies of the Biden administration would be beneficial to countries like India and would bring billions of dollars of investment in Indian companies. Many distressed Indian companies are looking for investment because the credit penetration in the country remains low, therefore, foreign investment is a major source of capital, especially for distressed companies.
The proposed tax would divert billions of dollars towards the Indian market and would help the country achieve double-digit growth, at the cost of the United States.
Money of capital market portfolio flows into capital markets. Therefore, money will come into speculative markets and not directly into the economy. Indian economy will be the fastest growing big economy soon, so investing in India will be the only option for them. Personally, I think Indian govt. should also increase capital gains tax on FII’s (for speculative markets) so that they are forced to invest in the real economy if they want to earn from India, but nobody has the guts to do this. BJP leaders criticized P-notes before 2014, but its 6 years in power and they haven’t dared to ban it. I don’t think having more gambling money is going to help anyone it will only hurt.