Capital gains may turn out to be a loss.

Capital gains from stocks held for longer than one year is exempt from tax in India, after payment of Securities Transaction Tax. Dividends from shares are fully tax exempt. "This tax exemption is so wrong on so many counts that one does not know where to begin and, having begun, where to stop," wrote VA Nageswaran. "Very few Indians are invested in the stock market. A vast majority of them who do are rich by Indian standards. So, large capital gains earned by a small number of Indians who are the richest go untaxed. It cannot get more bizarre than this." Less than 5% of Indians invest in shares, only in Gujarat and Maharashtra it is more than 5%, so the government wants more people to invest in stocks. But tax exemption is not necessary because markets in India have delivered 7.3% returns in dollar terms since May 1994, compared to 5.2% for emerging markets and 2.7% for China. So, there is no need to fear a collapse in share prices if capital gains are taxed. Returns from the Sensex have been 21-24% this year, Indian stocks are the most expensive in terms of price-to-earnings ratio and India has overtaken Canada in terms of market capitalisation. The government had hoped that a large amount of money will not return following demonetization, allowing the Reserve Bank to reduce its liability and pay the government a huge windfall, wrote A Mukherjee. Instead, the cost to the economy is estimated at Rs 1.28 trillion which would translate to significant loss in tax collections. A sizzling stock market allows the government to sell shares of public sector companies, known as disinvestment, at comparatively higher prices. Probably, the most important reason is that India runs a chronic current account deficit because we import much more than we export. Total exports amounted to a meager $274.65 billion in the last financial year. Our trade deficit with China was $49 billion in 2016. Instead of exporting we are having to import textiles, as they are much cheaper than our products. One way of making up the deficit in foreign exchange is from remittances sent by people of Indian origin living abroad, which last year amounted to $62.7 billion, down from $68.9 billion in 2015. Foreign portfolio investors have invested a total of $183.69 billion and the government would not want any reduction in that. No economy can grow at 7-8% unless exports grow at 15-20%, wrote SA Aiyer. We have to increase labour intensive exports, which will create jobs and increase growth. That is not happening. Hence, no capital gains on stocks. At least keep whatever money there is.