India cuts corporate taxes to counter slowing growth

September 20, 2019

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The economy grew at an annual rate of 5pc in the April-June quarter, its slowest annual pace in six years. — Reuters/File
The economy grew at an annual rate of 5pc in the April-June quarter, its slowest annual pace in six years. — Reuters/File

The Indian government on Friday announced a slew of concessions aimed at boosting the economy that will reduce most corporate taxes for local companies to about 25 per cent from 30pc.

Finance Minister Nirmala Sitharaman said the lower tax rates will retroactively apply from April 1, the beginning of India's fiscal year.

Share prices surged, with the Sensex in Mumbai jumping more than 5pc to its highest level since July.

India's economy, the world's 6th largest, was booming until recently but it has slowed in recent months, with growth in manufacturing dropping to 0.6pc in the last quarter from 12pc a year earlier.

Overall, the economy grew at an annual rate of 5pc in the April-June quarter, its slowest annual pace in six years. Many economists believe Prime Minister Narendra Modi's signature economic policies are at least partly to blame.

A surprise demonetisation in 2016 and a new goods and services tax have taken a dire toll on many businesses. Instead of improving government finances as intended, the GST and demonetisation undermined India's financial stability, economists say.

Sitharaman said that new manufacturing companies incorporated after October 1, will be taxed initially at an effective rate of 17pc.

Analysts welcomed the move.

“The fiscal steps by the Indian government are likely to re-energize investor interest in the subcontinent,” Jeffrey Halley of Oanda said in a commentary.

“India still has a non-performing loan swamp to drain, but this is most definitely a step in the right direction,” he said.