Sharma warns India 13% BoP deficit

Investor Shankar Sharma used X on June 2 to argue that India was heading toward a balance-of-payments squeeze and that policymakers should change capital-market taxes to avoid a larger external financing problem. In the post, Sharma said India could face a 13% balance-of-payments deficit, compared with 8% in 2008, and said the country risked “heading to an IMF situation” unless authorities acted. He proposed raising taxes on domestic mutual funds and cutting taxes for foreign investors in order to force a correction in Indian equities and attract overseas capital. The post drew wide debate on X the same day, with replies split between those warning about external vulnerability and those arguing a market crash would worsen confidence. ### What exactly did Sharma say? Sharma’s June 2 post framed the issue as a clash between domestic retail money and missing foreign capital. He said India had encouraged “financialisation” through systematic investment plans, or SIPs, while foreign institutional investor money had been leaving the country and the rupee had weakened. The main claim in the thread was that India could be headed for a 13% balance-of-payments deficit, which Sharma contrasted with an 8% figure in 2008. He said tax policy should be used to reverse incentives: raise taxes on mutual funds, lower taxes on foreign investors, and let the stock market correct. ### Why does balance of payments matter here? The Reserve Bank of India defines balance of payments data as the country’s record of external transactions, including trade, services, remittances and capital flows. A deficit means more foreign exchange is leaving than coming in, forcing a country to rely on reserves or fresh inflows. RBI data show India’s external position has moved quarter to quarter rather than in a straight line. In the fourth quarter of 2024-25, India recorded a current-account surplus of $13.5 billion, or 1.3% of GDP, after a deficit in the previous quarter. RBI preliminary data for April-June 2025-26 later showed developments in the balance of payments for the first quarter, underscoring that official readings arrive with a lag. (rbi.org.in) ### Where does the mutual-fund angle come from? India’s domestic fund industry has continued to post large SIP inflows. AMFI said total SIP collections in April 2026 were 31,115 crore rupees, following 30,768 crore rupees in March, and SIP assets stood at 15.11 lakh crore rupees in March. Sharma’s argument is that those steady domestic inflows help keep equity prices elevated even as foreign investors pull money out. (rbi.org.in) That view has also appeared in recent public discussion by economist Ajit Ranade, who said in an interview published by The Wire and syndicated on Dailyhunt that around $40 billion of foreign institutional investor money had left India in the previous two years and that some estimates for 2026-27 pointed to a negative balance of payments of $75 billion. (amfiindia.com) ### Did he offer a conventional policy fix? Sharma’s proposal was not a standard central-bank prescription. He did not call for an interest-rate move or a direct exchange-rate intervention in the post described in the social briefing. Instead, he focused on tax treatment in capital markets, arguing that policymakers should make domestic equity investing less tax-favored and foreign participation more attractive. (m.dailyhunt.in) The RBI’s latest annual report, published on May 29, 2026, lists external-sector conditions and global financial volatility among the factors shaping India’s macro outlook, but it does not endorse Sharma’s tax prescription. The report is the central bank’s most recent official overview before the next scheduled balance-of-payments releases. ### What are people arguing about in response? Replies on X focused on whether a stock-market correction would actually improve India’s external position. Some users argued lower equity valuations could draw foreign money back. Others said a crash would damage confidence without fixing the trade gap, especially if oil imports and other external costs remained high. That disagreement reflects two separate questions: whether India has an external financing problem, and whether equity-market taxation is the right lever to address it. (rbi.org.in) Sharma’s post answered both in the affirmative, while many replies accepted only the first part. ### What should readers watch next? The next hard data points will come from the Reserve Bank of India and the Association of Mutual Funds in India. RBI balance-of-payments and current-account releases will show whether the external gap is widening, while AMFI’s monthly notes will show whether SIP inflows remain near the 30,000-crore-rupee mark. (rbi.org.in)