Slew of economic stimuli brings back the shine on Brand Modi

Indian Prime Minister, Narendra Modi. (Photo: PTI)
Indian Prime Minister, Narendra Modi. (Photo: PTI)

Barely few days ahead of Prime Minister Narendra Modi’s visit to the US and his meeting with American President Donald Trump, India’s finance minister Nirmala Sitharaman has brought good news for corporate India. She has doled out sops for companies and announced an array of economic stimulus aimed at accelerating economic growth. The recent announcements have brought back optimism in corporate boardrooms.

Insiders say that talks of economic slowdown in the country followed by reports of job losses and shrinking investments had started to erode the value and power of Brand Modi.

“He is back..Brand Modi is in news once again,” an analyst pointed out, requesting anonymity.

On Friday, the finance minister slashed corporate tax rate for domestic companies from 30% to 25.17% which includes all cess and surcharges. Among other things, domestic manufacturing companies that have been incorporated after October 1 can opt to pay income tax at 15%. Effectively, this will be 17.01% inclusive of surcharge and tax.

The new rates will be applicable from April 1.

The announcement of the new tax rates has provided a much-needed booster for economic growth, which slowed to a six-year low of 5% during the April to June quarter of the current financial year. More importantly, it has managed to spin positive sentiments — essential for investments, growth and more importantly jobs.

Today’s announcements will give PM Modi a huge opportunity once again to showcase India as an investment destination. High tax rates have been one of the major reasons for low investments. The late finance minister Arun Jaitley too had pointed out the need to lower tax rates for improving compliance, investments and expansion of tax base.  

With the lowering of corporate tax rate to 25.17%, India would be on par with several other Asian economies.

The moot point is: Why didn’t the government announce these measures earlier?

Well, the exchequer will take a hit of Rs 1.54 lakh crore annually due to these measures. The government, until now, had attached more importance to fiscal disciple and consolidation than other critical aspects and this has had a direct impact on economic growth and jobs. Despite the Rs 1.76 lakh crore that it has received from the Reserve Bank of India it will be difficult for the Modi government to adhere to the 3.3% fiscal deficit target this year with these announcements on the tax front.

The government must realise the over-arching importance of boosting the economy, crucial for generating jobs. No government can afford to let the economy be on a slowdown mode while keeping a tight watch on the fiscal path. The government, therefore, need not be over enthusiastic about maintaining fiscal deficit targets at this juncture when the economy does need a shot in the arm– even if it means stretching the target marginally for a year or two.

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