On Friday, the Indian government launched an all out attack on the drooping Indian economy to counter the economic slowdown. Surprisingly, it was welcomed by the investors at a great level where the Sensex rose by over 1900 points and Nifty closed at 11,254.
The main attraction of the announcement made by the Finance Minister was the tremendous decrease in the tax slab of corporate tax rate. In order to boost up the businesses, there was a significant cut in the corporate tax rates, the effective tax rate (inclusive of surcharges) for domestic corporate, have been reduced from 34.94% to 25.17%.
Also, the tax rate for new domestic firms and new manufacturing units that set up in India, starting in October and commence production before the end of March, 2023 will be taxed at an effective rate of just 17%.
The above decision of the government is being called as the most visible factor leading to the drastic change in the market, where Sensex and Nifty observed their biggest one-day rise since 2009.What does this offer to the economy?
The decision clearly offers an incentive to the Indian markets to invest more in the corporate. As, most of advisors are suggesting, the present tax cut has made the country more competitive on a global level as far as corporate taxes were ever concerned.
It must be noted that whenever such cuts are made there is obviously a loss of revenue for the state. However, such a loss is generally recovered if such an incentive is actually able to stir up the market. There are many benefits, this might bring such as more investment, employment, etc.
Would it be actually helpful?
Whether or not this change of corporate actually stimulates the current economic slowdown, would be seen in time, but we would like to state what the experts are advise. On one hand, people are saying that this reduction is just a concession rather an actual help. As the real problem is the reduction in demand. Others say that the structural reforms such as GST has caused a loss in the demand of goods and employment. So, it is possible that such a reduction might actually help the current situation.