The global economic slowdown, clearly evident by the fact that the predicted growth rate of 3% went down to 2.7% for the world. While on the other hand, for India, the five trillion economy target of India which seems difficult to achieve, the newly re-elected government of the nation and the lethargic corporate sector, are instances which have the left the country in the doldrums.
So, what is the news?
The newly elected finance minister, Nirmala Sitharaman launched her own mini-budget recently. She made changes in tax rates, FDI policies and increased funding for various sectors.
Anything special? Or should I say the good news?
Talking about tax, Indian Domestic companies pay a hefty tax of 30% over and above their income generation. To talk about the impact, it affects more than 7 lakh companies of the economy.
Now, the announcement reduces this 30% to 22% for such companies. Effectively, taking everything into account, it is around a 9-10% drop varying across different sectors. The effectivity lies in how there are always certain additional charges like education cess imposed after corporate tax on certain sectors or industries. However, companies who haven’t availed any tax exemptions or incentives will be liable for this new tax rate scheme.
Where will things go now?
Cutting tax rates is the quickest way out for increasing the spending power of companies. They will invest more, have more incentive to generate income and also try to pass on the benefits of this tax cut via discounts to the customers, especially during peak festival time in India.
There will be a sense of relief in the markets, considering the fact that India is a consumption-driven economy and a tax cut will boost consumption as it’s the primary target.
However, from another angle, the Government will lose out on its tax revenues by a huge amount which can, in turn, affect their fiscal deficit on a large scale. But at this moment of crisis, the government is more concerned about growth and revival from the current static situation.
India is yet to see the future play out after this new announcement but the fact remains, there need to be more changes or plan of actions to ensure GDP growth at an increasing rate, with frequent economic evaluations to recognize the strengths and weaknesses.