Active Stocks
Thu Jul 18 2024 13:45:53
  1. Tata Steel share price
  2. 165.15 -1.14%
  1. NTPC share price
  2. 378.00 -0.64%
  1. State Bank Of India share price
  2. 892.00 1.27%
  1. ITC share price
  2. 468.65 0.68%
  1. HDFC Bank share price
  2. 1,615.15 -0.29%
Business News/ Opinion / Columns/  Opinion | Will the finance minister’s punt on India Inc pay off?

Opinion | Will the finance minister’s punt on India Inc pay off?

The corporate tax reforms are a great opportunity for India Inc to seize

Authoring the fresh round of tax reform could be a defining moment for finance minister Nirmala Sitharaman. (Photo: Pradeep Gaur/Mint)Premium
Authoring the fresh round of tax reform could be a defining moment for finance minister Nirmala Sitharaman. (Photo: Pradeep Gaur/Mint)

Last Friday, finance minister Nirmala Sitharaman took centre stage by announcing what is clearly the first phase of long overdue direct tax reforms. The focus of this round has been on corporate taxes. It is also the first time, since the aborted bid to put in place a new law for land acquisition, that the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) has undertaken policy change focused on India Inc.

In a press conference lasting about 40 minutes, Sitharaman, who has just about clocked 120 days in her first stint in North Block, announced a slashing of corporate tax rates to 25.17% for those companies willing to give up on various tax concessions and 17.01% for firms set up after 1 October. Existing firms can also avail of the new rate once their ongoing tax holiday runs its course.

By announcing a sunset to tax holidays, the finance minister has also signalled to India Inc that in future, they will have to compete, within and outside the country, on their abilities and not on the crutches of tax sops. The record rise in the bourses on Friday only reinforced the perception that the changes are being viewed positively.

It could potentially be a defining moment for Sitharaman, who so far has been put under the spotlight, sometimes unfairly, for failing to halt the rapid slowdown in the economy. By authoring this round of tax reform and managing the politics associated with it, she is starting to pen her own script.

While on paper it is a welcome piece of reform, the thing is that India Inc has to come out of its deep stupor because of which fresh investments have all but stagnated for the last eight years. Given that global supply chains are being disrupted and relocated, it is a great opportunity for India Inc to seize. But, will they rise to the moment? This is exactly why the move is a big bet by Sitharaman on India Inc.

The thing is that gloom and doom in corporate India is a manifestation of several issues.

For one, the business processes are being turned on their head. A model traditionally based on cash is being gradually consigned to the dustbin of history, especially after the implementation of demonetization of high value currencies to target black money and the goods and services tax (GST). Most corporates are struggling to come to terms with this new order.

Second, linked in part to the previous reason, overall demand in the economy has shrunk. But it would be incorrect to assume that this is recent. Himanshu, a Mint columnist and scholar, recently wrote how the wages of regular workers with qualifications in urban areas, too, have been declining. Rural India, ever since global commodity prices collapsed after the 2008 crisis, has been progressively plunged into a distress situation. Taking the two together, it is no surprise that economic demand has dissipated.

The good news is that some of this, especially the new business processes, is transient and the effects, after the initial shock, will gradually work themselves out. But the bad news is that till that time, the economy will struggle for lack of adequate demand.

One way out, and the finance minister has already said it in as many words, is to frontload the Union government’s spending programme for the year. With less than six months left for the fiscal year to conclude, this may be the moment.

Another option is to nudge the small and medium sector. Many are already beginning to partake and tap the benefits of a formalized economy and also the economic unification of India through the implementation of GST—it is suddenly bringing markets to our entrepreneurs.

It is clear then that the challenges in the economy have far from waned. The ensuring euphoria of direct tax reform may lull everyone into believing that this is the silver bullet for all ailments. Far from it, especially in the short run. For now the spotlight will be on India Inc.

Anil Padmanabhan is managing editor of Mint and writes every week on the intersection of politics and economics.

3.6 Crore Indians visited in a single day choosing us as India's undisputed platform for General Election Results. Explore the latest updates here!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 22 Sep 2019, 10:43 PM IST
Next Story footLogo
Recommended For You