New Delhi: It wasn’t a Black Friday but very much the opposite. India Inc. Friday double cheered government’s Rs 1,45 lakh crore stimulus initiative that includes slashing corporate tax to 22 per cent for domestic companies, lowering tax of 15 per cent for new manufacturing firms and strong measures to invigorate the country’s capital market.
The government will bear a massive Rs 1.45 lakh crore per year to support its move to reduce corporate tax. While domestic companies have a lot to cheer about, the Finance Minister said she is “conscious” of the effect the announcement would have on India’s fiscal deficit target. “We are conscious of the impact all this will have on our fiscal deficit,” said Sitharaman, who has targeted to narrow the budget gap to 3.3 per cent of the GDP this year.
“We welcome the Finance Minister’s proposition of slashing corporate tax, scrapping surcharge on buyback announced before July 5 and expanding the scope of CSR spend,” said Nagesh Basavanhalli, MD and CEO, Greaves Cotton Ltd.
The biggest booster dose of the Modi 2.0 government is expected to give a major push to the sagging economy which clocked a 6-year low growth of 5 per cent in the April-June quarter of FY20.
Anil Agarwal, Executive Chairman, Vedanta Resources, said that the government move will definitely prove to be a huge impetus for the manufacturing and infrastructure sector.
“We are confident this step, in coming days, will boost economic growth so that Gross Domestic Products (GDP) can attain its true potential of 8-9 per cent,” he said.
The new set of measures is also aimed at lifting market sentiment which has seen foreign portfolio investors (FPIs) pulling out their money from the capital market since the Union budget announcement of raising surcharge on them.
The move to lower corporate tax, withdrawal of surcharge and other concessions seem to have hit the right chord with investors as it sent stocks at both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) soaring.
The lower corporate tax effected for 2019-20 through an ordinance is set to induce private investment and boost consumption, the two key growth engines.
“India Inc. looks forward to a roller coaster festive season tax bonanza to ride the tide of positive sentiments. This positive sentiment will go long way in resurrecting dying economy, but we also hope that super tax on the individuals and HUF would also be further rationalised at 35 per cent from currently obnoxious rate of 42 per cent to uplift the end-users spirit,” said Niranjan Hiranandani, Senior Vice President at industry body Assocham.
Business and industry see the fresh measures helping them in beating the slowdown which has gripped the entire country for quite some time. As the corporate tax rate has now been brought at par with many emerging economies and countries in South East Asia, industry captains hope it will make the Indian economy globally competitive.
While hailing the government move some of the experts cautioned the fiscal risks involved with it.
“The tax reliefs announced are likely to put upward pressure on the fiscal deficit needing a revision in the government’s borrowing target for the year. This would likely lead to upward pressure on bond yields but this could get mitigated if RBI chips in with an aggressive policy rate reduction,” said Dheeraj Singh, Head of Investments & Fund Manager, Fixed Income, Taurus Asset Management Co. Ltd.
