Finance Minister Nirmala Sitharaman’s announcements on September 20 are expected to give a major boost to the spirits of corporate India and to reinvigorate the manufacturing sector hat has been going through a difficult phase of late. The new package announced is part of a slew of measures that would act as a powerful force for the speedier movement of the country's economic engine.
The reduction of the corporate tax to 22 per cent from 30 per cent and 15 per cent corporate tax for new manufacturing companies registering before October 1 has boosted India’s corporate sentiments, which were hit by sagging economic growth.
Reducing the corporate tax rate to 22 per cent is a big bang reform. It allows Indian companies to compete with lower tax domains like the US and other Asian countries. Lowering the tax rate for new units virtually means rolling out a red carpet that would ensure higher foreign investment over the medium term.
Banking, FMCG, consumer durables and auto companies are the major sectors that are expected to immediately benefit from the cut in tax are. Apart from boosting demand, India stands poised to suddenly become attractive for the manufacturing sector with a lower corporate tax rate for new manufacturing companies in India. This is all the more relevant in times when the world is in the phase of trade wars.
With the kind of corporate tax rate cuts announced, India has become a competitive market in the region, with rates similar to those prevailing in the ASEAN countries.
Additional measures have been announced to stabilise the flow of funds to the capital markets by not applying the enhanced rate of surcharge on capital gains arising from sale of equity shares and units of equity funds. This major positive step is expected to make India an even more attractive destination for funds flow to draw greater attention from foreign institutional investors.
Another worthwhile announcement is the decision to allow CSR funds to be used for supporting incubators set up by central and state governments and supporting universities, autonomous institutions, besides research bodies that are publicly funded. This clearly indicates that the government wishes to promote public-private partnership in scientific research and development and make India move up the innovation ladder.
The Finance Minister’s new package is a strong signal for the government’s commitment to economic growth and will support legitimate tax abiding companies.
