FM’s growth booster

THE  cut in corporate tax for existing and new manufacturing units was announced ahead of PM Modi’s meetings with CEOs of over 60 American MNCs. The air around the three roundtables in Houston and New York would have considerably lightened with this generous business-friendly gesture. India’s biggest-ever slashing of corporate tax puts it at near-parity with South East Asian countries. But in the ease of doing business, India is slightly behind Vietnam and Indonesia and has much catching up to do with South Korea, Malaysia, Thailand and Singapore. Corporate tax cuts, waiver of surcharge on portfolio foreign investors, lower interest rates, Rs 50,000 crore for exporters or Rs 10,000 crore for the housing sector have been executive fiats that were easy to implement.

Road connectivity, a key component of an attractive investment destination, seems to be stalling; the NHAI is weighed under a Rs 3-lakh crore debt burden and over Rs 60,000 crore in litigation. India, with its huge market and a youthful labour basket, is taking time to turn the promised corner. There are other enabling factors that are yet to be put in place, such as an imaginative land legislation that ensures development is evenly spread and does not gravitate completely towards existing industrial clusters. Many countries with single-digit corporate tax rates could not transform themselves into investment magnets due to the absence of supplementary economic factors or lack of social stability.

The stimulus has led to a Rs 1.46 lakh crore hit to the Central exchequer. The ordinance and FM Nirmala Sitharaman’s announcement on the tax cuts were tailor-made to drive up the stock market indices that faced a $4.5 billion outflow. But the states have been forced to bear the burden of Rs 61,000 crore. Another downside of this reduction in the income to the exchequer will be lowering of government expenditure, where again the states will feel the pinch. Questions have been raised about taxing corporates less than the rates for personal income and consumption taxes, making it necessary to address the inequities and challenges that have emerged at the state and individual levels.