Last quarter most of the corporates and economists were disappointed with growth rate, which was 5 percent. With this growth rate, for Indian economy it is impossible to reach 5 trillion USD by 2024. For reaching 5 trillion USD by 2024, India has to progress with at least 8.3% growth rate. So, the finance minister is taking quantifiable steps to restore the economy progress. Out of that, major one is corporate tax deduction from 30 to 22 percent, It’s definitely a bold move, with this move government will lose 1.5 lakh crore rupees in its annual budget. To compensate for 1.5 lakh crore, Government may increase indirect taxes, reduce subsidies, welfare schemes or take the debt. But taking debt will lead to more fiscal deficit, so the government may not choose this option. Apart from this, reducing corporate tax will give a big boost to the economy as well as foreign investments. Another big announcement by Nirmala was 15 percent corporate tax for new investments from October 1s t and many companies which got incentives(mainly companies situated in SEZs) need not pay minimum alternate tax(MAT).
After 15 and 22 percent of corporate tax, India becomes one of the few countries which collect low corporate tax in the world. The club of OECD, which consists of developed countries all around the world collecting more corporate tax than India. The USA, Germany, China and Japan collecting 25.9, 29.9, 25 and 29.7 percent respectively.
In Asia, After China, most of the companies prefers ASEAN countries for their investments, where Vietnam and Thailand 20 percent and Taiwan 17 percent collects corporate tax which is more than India’s new corporate tax.
Last month Sitaraman announced amalgamation of 10 PSBs in to 4 PSBs to make bigger banks, with this; Total number of PSBs in India are 12 from 27 in 2017. Aim of this move was, big banks to have enhanced capacity to increase credit and risk appetite, big banks can also reach global investors. In her earlier budget speech, she announced Rs 70,000 crore infusion into PSBs for the current financial year, within one month of announcement, government infused Rs 55,250 crore capital into PSBs to overcome the stress which comes from the NPAs.
With the series of Corporate tax deduction, Banks merger and infusion of money into PSBs etc are in right way in the long term to Indian economy, for shorter term problems like demand in the market and exports, Finance ministry is forcing all the government organisations to purchase their requirements and clearing the pending bills. Fortunately this year monsoon is positive, it may help the agrarian sector and as well as it creates demand in the country from the farmers. India has been witnessing trade deficit from the long time mainly due to crude oil imports, gold imports and poor exports. Another worry is exports are declining, To address this government need to consider giving incentives to export companies by reducing custom duties or reducing GST slab on those products etc.
In easy of doing (EOD) business ranking, India jumped to 77 rank in 2019 from 142 in 2014, Government has put the target to reach in top 50. To give EOD ranks, World Bank considers
different parameters from only Mumbai and New Delhi, if it considers from top EOD rank states, India would have been top 50.
Another barrier to investors in India is interest rates, in most of the developed countries rates are in between 1.5 to 2.5 percent but in India it is 5.4 percent. Reduction of interest rates may lead to much inflation. Still RBI has reduced interest rates in the last two review meetings by keeping mind in the corporates and investors.
One more problem facing by Indian economy is private investment, From the last couple of years private investments are declining, to balance it government is investing in infrastructure, it may help to generate more jobs and attract more private investments in the manufacturing sector. Still Government needs to take some more steps to address unemployment problem by giving more incentives to MSMEs, MSMEs can only generates adequate number of jobs.
Government has taken 1, 76,000 Crore from Reserve bank of India in this financial year, out of that 1, 23,000 crore as dividend and 52,637 core from its surplus capital. It may be used to compensate the fund which the government lost due to corporate tax deduction.
In the past, due to cheap labour and with flexible rules, China has attracted trillions of dollars as foreign investments from western countries. Presently situation is different in China, trade war between The US and China, Increase of labour costs, economic slowdown forcing companies to move out from China. Now India can replace China, cheap labour, GST implementation, low corporate tax, better environment for industries and more over big market will attract the investments.
Growing 8 percent is not even enough to eradicate poverty from the Indian society, it needs to touch the double digit. For that the government has been taking steps, Hope these steps may help to reach 5 trillion economy by 2024.