When you are in a chronic slowdown primarily due to policy failures, any such measure as tax rate cuts will not bear instant results
The corporate tax rate cuts announced by the FM yesterday, have expectedly been widely applauded. All industry leaders cheered the move and expect it to boost investment and economic growth and to revive the slowing economy. With a 10% rate cut for existing domestic corporates and 12% for new ones being set up for manufacturing business, it is the highest tax relief given by any Indian FM in almost thirty years and the euphoric stock markets also gave it the loudest celebration in the last ten years, with the stock markets Sensex index rising by over 2000 points in a single day.
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A tax rate cut always makes the country an attractive investment destination and its corporates competitive and that is what these tax rate cuts are expected to do. In terms of tax rates for manufacturing units, at 15% the tax rates for new units in this sector are perhaps now the lowest in the world and at 22% for others, they compare very well with our competitors in the region, whose tax rates are 25% in the case of China, Indonesia and Bangladesh, 23.2% for Japan, 20% for Thailand and Vietnam, 21% for the USA and 16.5% for Hong Kong.
But when you are in a chronic slowdown primarily due to policy failures, any such measure as tax rate cuts will not bear instant results and revive the economy or boost investments. But prudent moves do improve the sentiment and confidence of the consumer and the investor, both of whom have been worried and despondent, explaining why they are not spending or investing.
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