India likes to tell itself a story.

The story goes like this: we are the fastest growing large economy in the world, our stock market is the envy of emerging markets, and every young Indian with a smartphone and a demat account is now a shareholder in the nation’s growth.

It is a good story. It is also, on the evidence, only half true.

The other half is a quieter one, told in tax notifications, SEBI data releases, and rupee depreciation charts, and it says something less flattering. It says that the Indian state has spent the last decade squeezing the ordinary investor and trader from every direction, taxing the entry, taxing the exit, taxing the currency in which the whole game is played, and then sending its ministers and cheerleaders to Television studios or YouTube videos or LinkedIn to explain why this is all for our own good.

I want to walk through the numbers, because numbers do not care about narratives.

The tax that taxes the tax

Start with the Securities Transaction Tax, or STT. It was brought in back in 2004 by then finance minister P. Chidambaram, sold as a simple, low-friction way to catch capital gains at source. For years it stayed modest.

Then came Budget 2024, and the government raised STT on futures from 0.0125% to 0.02% of turnover, and on options from 0.0625% to 0.1% of premium, effective October 2024. That is not a small tweak.

On options alone, the tax nearly doubled. And it did not stop there. Budget 2026 raised it again, to 0.05% on futures and 0.15% on options, effective April 2026, a further hike of 150% on futures and 50% on options within about 18 months of the last one.

STT is charged regardless of whether you make money or lose it. It is not a profit tax. It is an entry fee on participation itself, deducted whether your trade wins or dies. And since Budget 2023 quietly removed the ability of speculative traders to claim STT as a deductible business expense, even the professional trader who declares trading as business income cannot offset this cost the way a normal business would offset any other expense. You are taxed on the attempt, not the outcome.

Then,

Long Term Capital Gains tax on listed equity, once a politically sacred zero in India for years, was reintroduced in 2018 at 10%, then hiked in Budget 2024 to 12.5%, with the exemption threshold barely nudged from one lakh to 1.25 lakh rupees, a threshold that has not kept pace with either market growth or inflation.

Short Term Capital Gains went from 15% to 20% in the same budget. And crucially, all these concessional rates apply only if STT was paid on the transaction. So the investor is taxed at the gate through STT, and then taxed again at the door through LTCG or STCG, and the government has structured the two taxes so that one is now the precondition for the other.

Compare this to the older folk tale that Indian equity investing is somehow undertaxed. It simply is not true anymore. Between STT, capital gains tax, stamp duty, GST on brokerage, and now higher F&O transaction costs, an active Indian trader today pays more layers of tax on a single roundtrip trade than most people realize, and none of these layers care whether the trade made a rupee of profit.

What the numbers on losses actually say?

The government’s own regulator has given us the receipts. SEBI’s July 2025 study titled “Comparative Study of Growth in Equity Derivatives Segment vis-à-vis Cash Market After Recent Measures” found that individual traders lost a net 1,05,603 crore rupees in the futures and options segment in FY 2024-25, up 41 percent from 74,812 crores the year before.

91% percent of individual traders in equity derivatives ended the year in the red. The average loss per trader was about 1.1 lakh rupees, itself up 27% year on year. An earlier SEBI study covering FY22 to FY24 had already found 93% of individual traders losing money, with aggregate losses of over 1.8 lakh crore rupees across three years, and separately calculated that retail traders spent about 50,000 crore rupees over that period purely on transaction costs, brokerage, and fees, money lost regardless of whether the underlying trade won or lost.

Here is where the government’s own logic turns against it. If 9 out of 10 retail traders are losing money on derivatives, and the government’s stated reason for repeatedly hiking STT is to curb this exact behaviour, then the honest thing to say is that the tax hikes are not primarily revenue measures, they are behavioural weapons aimed at retail participation itself. That may or may not be sound regulatory policy. But it is a very different thing from the story sold on budget day, where a rising STT is framed as a modest, technical, revenue-neutral adjustment.

When the finance minister stood up in Parliament in July 2024 to announce the F&O STT hike, and again in the 9^th budget to raise it further, the framing was procedural, “I propose to raise the STT.” What was not said with equal clarity is that this is a tool being used to price ordinary Indians out of a market that Indians are simultaneously being urged, in every advertisement and every talk show, to enter.

You cannot run a national campaign to get more citizens into equity markets while your finance ministry raises the cost of every single trade those citizens make, and call both of these things coherent policy in the same breath. One of them is theatre.

Even an investor who avoids derivatives entirely, buys blue chip stocks, and holds for the long term, faces a tax that never appears on any tax form: the rupee itself. The rupee has depreciated from about 3.3 to the dollar at independence to over 90 to the dollar by late 2025, a slide that has averaged something like 4 to 4.5% a year over the long run. In just the 10 years to March 2025, the rupee fell roughly 38% against the dollar, from about 62.8 to 87.

In 2025 alone, it slid further, breaching 90 and touching an all-time low near 91 in December, a fall of around 5% for the year even as the Nominal Effective Exchange Rate against a wider basket of 40 currencies fell about 8% and the inflation adjusted Real Effective Exchange Rate fell nearly 10 percent.

What this means in plain terms is that an Indian investor’s rupee returns are already discounted before they even look at a stock chart. A portfolio that grows 12% in rupee terms in a year when the rupee falls 5% against the dollar has, in real global purchasing power terms, grown closer to 6 or 7 percent. This is not a conspiracy, currencies of developing economies often depreciate relative to reserve currencies, but it is a cost that is rarely mentioned honestly in the same breath as market returns, because it complicates the growth story.

Where the foreign money actually went

If Indian markets were truly the best growth opportunity going, foreign capital would say so with its feet. Instead, 2025 became officially the worst year on record for foreign portfolio flows into Indian equities, with net outflows of about 1.58 to 1.6 lakh crore rupees, roughly 18 billion dollars, surpassing the previous record outflow of 1.21 lakh crore in 2022.

Foreign ownership of NSE-listed companies fell to 16.9 percent, its lowest level in over fifteen years, and foreign ownership within the Nifty 50 itself slipped to a thirteen-year low of about 24.1 percent. Between September 2024 and November 2025, foreign portfolio investors pulled out nearly 28 billion dollars from Indian equities, according to HSBC research, making India the second largest underweight position among global emerging market portfolios. By some counts, cumulative FII selling since December 2024 reached roughly 49 billion dollars.

Where did that money go instead? South Korea’s Kospi returned close to 70 to 76% in 2025, its best year since 1999, driven by semiconductors and AI infrastructure demand. Brazil’s Bovespa rose close to 39 percent. Hong Kong’s Hang Seng rose about 20 percent. India’s Nifty 50, by contrast, delivered around 10 to 10.5% for the year, and by mid-2025 was underperforming the Hang Seng by roughly twelve percentage points and the Kospi by over twenty.

One brokerage house, Ambit Capital, described India’s one-year underperformance against emerging market peers as close to the worst in two decades, with earnings per share revisions in dollar terms among the worst of any major emerging market. This is not a market being starved of global capital by bad luck. Capital goes where returns and policy predictability are highest, and in 2025 that was mostly not India.

Only domestic mutual funds, propped up by relentless SIP inflows from ordinary households, kept the market from a much sharper fall, with domestic institutional ownership of Indian equities climbing to a record high even as foreign investors quietly walked out the back door. In effect, retail India’s own savings discipline is subsidising the exit of the very foreign capital the government spent a decade courting.

The theatre of good news

Every time the market wobbles, a familiar chorus appears in the newspapers and on business television. Officials describe corrections as healthy. Commentators aligned with the establishment describe every dip as a buying opportunity and every crackdown as investor protection, never as a tax grab. Newspaper front pages carry breathless stories about record IPO subscriptions and unicorn valuations on the very weeks that SEBI’s own data shows nine out of ten retail derivative traders losing money. This is not unique to India, financial media everywhere has a weakness for optimism, since optimism sells advertising and pessimism does not.

But in India this cheerleading has a particular political flavour. It is not merely bullish, it is patriotic, framed as an act of loyalty to the nation to believe the market will always go up and that any tax hike, however punishing, is simply the mature price of nation building. Genuine scepticism, the kind that simply asks to see the loss data before celebrating the growth data, gets treated less as analysis and more as disloyalty.

The honest description of what is happening is less flattering than the theatre suggests. A government raises transaction taxes twice in eighteen months, its own regulator’s data shows the overwhelming majority of active retail participants losing money, foreign investors are leaving at a record pace, and the rupee is quietly eroding whatever gains remain, and yet the dominant public conversation stays fixed on record indices and IPO oversubscription numbers, as if scale of participation were the same thing as return on participation. Numbers of demat accounts opened are not evidence of wealth created. They are evidence of participation, and participation, as SEBI’s own data proves, has been increasingly a losing proposition for the individual on the other side of the trade.

What India could actually learn

Look elsewhere and the contrast is instructive. Vietnam taxes listed share sales at a flat 0.1% of the transaction value, a single simple charge, and has spent years reforming settlement and foreign access rules rather than repeatedly hiking transaction costs, work that earned it an upgrade to FTSE Russell’s emerging market status in 2025, a signal that tends to draw fresh foreign capital rather than repel it.

Indonesia applies a comparable flat 0.1% withholding on listed share proceeds. Singapore and Malaysia levy no capital gains tax on securities at all, relying instead on modest stamp duties. Thailand exempts individual residents from tax on gains from shares listed on its own exchange entirely.

None of these markets are free of speculation or retail losses, and none of them are utopias, but their tax architecture treats the ordinary saver’s entry into equities as something to be simplified and encouraged, not something to be taxed twice over and then hiked again whenever the exchequer needs a headline number.

The lesson is not that India should abandon capital gains tax or investor protection regulation. SEBI’s caution about retail losses in options is grounded in real, well-documented harm, and that part of the regulatory response deserves credit rather than ridicule.

The lesson is that a government cannot on one hand build a national identity around stock market participation as evidence of a rising middle class, and on the other hand treat every rupee that enters that market as a target for repeated, compounding taxation, while pretending in public commentary that this is all simply prudent stewardship.

Simpler, flatter, more stable tax regimes elsewhere have not stopped those markets from protecting their retail investors. They have simply stopped pretending that taxation and investor protection are the same policy instrument.

Well,

None of this means the Indian growth story is fake.

The economy is genuinely growing, corporate earnings genuinely exist, and millions of new investors have genuinely entered formal markets for the first time.

But a story can be real and still be told dishonestly. The dishonesty here is specific: treating tax hikes as investor protection, treating capital flight as a temporary sentiment problem rather than a verdict on policy and currency stability, and treating loud optimism on television as a substitute for reading what SEBI itself has published.

The numbers, when you actually sit with them, tell a story of a state extracting more from its investors at almost every turn, a currency quietly eroding whatever nominal gains remain, and a foreign investor base voting with its capital while officials insist all is well. An investor does not need cheerleaders. An investor needs an honest tax regime and a stable currency. India has, for the moment, chosen theatre instead.

Views of the author are personal and do not necessarily represent the website’s views.

Dr. Jaimine Vaishnav is a faculty of geopolitics and world economy and other liberal arts subjects, a researcher with publications in SCI and ABDC journals, and an author of 6 books specializing in informal economies, mass media, and street entrepreneurship. With over a decade of experience as an academic and options trader, he is keen on bridging the grassroots business practices with global economic thought. His work emphasizes resilience, innovation, and human action in everyday human life. He can be contacted on jaiminism@hotmail.co.in for further communication.

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