In the midst of the slowdown in the economy, Finance Minister Nirmala Sitharaman not only cheered the industry by announcing corporate tax cuts, but also shocked the entire world when the industrialists were feeling disappointed. Untill now the biggest hurdle in the way of foreign investment in India was the high rate of corporate tax, investments that used to go in China or other East Asian countries will now be attracted to India due to the new rates. This decision will also give a boost to Make in India and Startup of Modi regime. From 1 October onwards, corporate tax rate on new manufacturing companies will be 17.01 percent including cess and surcharge, this was 29.12 earlier.
Our Ex Finance Minister, Late Arun Jaitley also talked about reducing corporate tax rates on number of occasions and making them competitive compared to South Asian countries. Despite this, no one expected that the announcement that was not made in the budget would be made in the middle of the current financial year. There were signs of slowdown in the economy since the Modi government came back to power. The slipping automobile industry first and then the falling GDP figures were reflecting the economic slowdown. Even after several announcements were made by the government for the last three weeks to accelerate the economy, the atmosphere was not changing. Now the situation has completely changed with this strong dose. Not only India, it has been welcomed by investors all over the world. This can be considered as the biggest decision in the last few years. Since this decision is also going to create new employment opportunities, it has raised the expectations of everyone. Keep in mind that when employment opportunities increase, demand also gets boosted.
This step will cause a burden of Rs 1.5 lakh crore, but it is expected that the fiscal deficit will increase only in a nominal manner. Recently, RBI has given the government from its reserve 1.76 lakh crores. This amount will be adjusted against the increasing expenditure due to new announcements. When it is believed that the reduction in corporate tax rates will accelerate the manufacturing and services sector, the government will also have to include improvement in the rural economy as its priority. At present, agriculture-based economy contributes 15 – 17 percent of the country’s GDP, while 65 – 70 percent of the population lives in villages. Since only subsidies are not sufficient to speed up the rural economy, along with heavy investment in agriculture, other necessary steps have to be taken.