RBI Ex-GuV Subbarao: Capital Outflows Fuel Rupee Drop, Not CAD

• Former RBI Governor D Subbarao states rupee depreciation is driven by capital outflows, not current account stress.
• FPIs are withdrawing due to rising domestic retail investment, profit-taking, and global capital shift to AI.
• FDI net inflows are turning negative as foreign firms repatriate earnings, questioning investor confidence.
• Subbarao suggests stabilizing capital gains tax for 5 years and lowering withholding tax to attract long-term investment.
• He praises the inflation-targeting framework and MPC for enhancing RBI's independence, despite challenges like supply-side inflation and exchange rate impact.

Why It Matters: Rupee's fall is from capital flight, not trade deficit; RBI's framework is stronger but faces challenges.