MUMBAI (AFP) – India said yesterday it would slash corporate taxes to among the lowest in Asia as part of its drive to kickstart the stuttering economy, sending the country’s stock market surging as analysts predicted a renewal of interest in the region.
Finance Minister Nirmala Sitharaman said the main rate for domestic firms would fall to 22 per cent from 30 per cent as New Delhi aims to attract companies spooked by the China-United States (US) trade war that has hammered global supply chains.
The move looks to give a lift to Prime Minister who faces increasing pressure to relight once-stellar economy after five consecutive quarters of slowing growth saw India this year lose its status as the fastest-expanding major economy to China.
Sitharaman said that to “attract fresh investment in manufacturing and boost Make In India” the tax rate for new companies would be cut to 15 per cent from 25 per cent, the Press Trust of India news agency (PTI) said.
She told reporters the new rates would be “comparable with the lowest tax rates in South Asian region and in South East Asia”.
The announcement sent shares soaring more than five per cent in Mumbai – the biggest jump in 10 years – while the rupee and firmed against the dollar. Indian stock markets have been on course for the biggest quarterly exodus since at least 1999, with foreign funds having dumped a net USD4.9 billion worth of stocks since June, Bloomberg News said.
Jeffrey Halley at OANDA said the cuts were “likely to re-energise investor interest in the sub-continent” after two and a half years “of slowing growth and disappointment in PM Modi’s reform progress”. Authorities have in recent weeks rolled out a series of measures to boost the economy and battle grinding unemployment, which is at its highest since the 1970s.
Among its latest measures are lifting a ban on government departments buying new cars as it looks to support the auto sector, which saw sales dive 41 per cent last month.
The Reserve Bank of India (RBI) – reportedly under government pressure – has cut interest rates four times this year to a nine-year low, while New Delhi has also announced the merger of 10 state banks to try to ease pressure on lenders.
The government has also eased restrictions on foreign investment in four key sectors, including coal mining, in an effort to attract more overseas capital. Ashutosh Datar, an independent economist, told AFP the tax cuts were “long overdue as India has one of the highest tax rates in the world”.
And Rajiv Singh from Karvy Stock Broking added that after a number of “minor” changes, the government has finally announced “a bold and major measure to revive animal spirits”.