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Expressing concerns over Foreign Portfolio Investors (FPIs) facing Minimum Alternate Tax (MAT) demand, global rating agency Fitch on Friday said the controversy might prompt FPIs to think twice before investing in India.
"The long-term impact on investor inflows of the retroactive tax on capital gains is not yet clear. It might lead FPIs to think twice in the future, though India's strong growth outlook compared with many of its peers might attract them anyway," said Thomas Rookmaaker, director, Sovereign Ratings, Fitch Ratings.
The income tax department has already issued notices to 68 foreign institutional investors (FIIs) totalling Rs 602 crore for non-payment of MAT at the rate of 20 per cent for profits earned.
Some foreign investors have gone to the court, while the government has decided to set up high-level committee to resolve the issue.
Referring to recent outflow of funds, Rookmaaker said, "There have been some net foreign investor outflows in equities in recent weeks, but not so much in bonds."
India's external balances were strong relative to peers on some accounts, and could withstand the current outflows, he said.
Last month, the agency had affirmed India's 'BBB-' rating with stable outlook.
