New Delhi, Oct. 23 -- Amid persistent foreign fund outflows, Madhavi Arora, chief economist at Emkay Global Financial Services, suggests rationalizing the effective transaction-tax burden rather than tweaking headline long-term capital gains (LTCG) rates. While she notes that a reversal of the global AI trade could improve India's relative attractiveness, that alone won't trigger a sustained return of foreign capital-just as new free-trade agreements (FTAs) can help cushion - but not fully offset - external demand shocks. Edited excerpts:

I would rationalize the effective transaction-tax burden rather than make another large change to the headline LTCG rate. Listed-equity LTCG is currently taxed at 12.5% on annual gains above Rs.1.25 lak...