DOMESTIC COS TO BE MORE COMPETITIVE

The tax cut will level the playing field and allow Indian companies to compete with those in lower-tax jurisdictions globally and also help attract significant investments, say industry leaders.

MUMBAI: The cut in corporate tax rates on Friday will play a major role in reviving economic growth, which slumped to 5% in the June quarter, besides improving the investment climate and pushing private sector capex, said industry leaders.

A slowing economy and consumer demand slump, amid banking sector woes over nonperforming assets and the liquidity crunch facing non-bank lenders, had fuelled uncertainties and volatility in the market.

The government announcement to cut basic corporate tax rate for domestic firms from 30% to 22%, and for new manufacturing firms from 25% to 15%, is a “bold move” that will make Indian firms more competitive on the global stage, said senior leaders and company executives. It will also help attract significant investments from foreign and long-term investors.

“The government’s decisive steps to pump-prime the economy will lead to a big reset and revive animal spirits in corporate India. The reduction in corporate tax rates will not only lead to economic buoyancy, but will also make Indian industry more competitive globally,” said Kumar Mangalam Birla, chairman, Aditya Birla Group. The steps will also lead to a paradigm shift in the mindset, Birla added.

The move is likely to help the Centre achieve the target of growing exports to $1 trillion in the next five years, as lower taxes will help domestic firms compete with global peers. In FY19, exports crossed clocked $537 billion.

Uday Kotak, executive vicechairman and managing director, Kotak Mahindra Bank, said the Centre’s decision will level the playing field and allow Indian firms to compete with those in lower-tax jurisdictions.

Industry leaders also expect the move to boost industry sentiment and lead to a revival in capital expenditure.

Mint reported on July 2 that investments in new projects had plunged to a 15-year low in the June quarter, citing data of the Centre for Monitoring Indian Economy. Indian firms announced projects worth ₹43,400 crore in the June quarter, 81% lower than in the March quarter, and 87% lower than a year ago.

“We are certain that this Big Bang reform will kick-start the economy. Surplus funds available to firms will be invested in capex and talent,” said Ajay Piramal, chairman, Piramal Group, adding non-banking financial firms will be able to save ₹250-300 crore, which can potentially be redeployed as loans.

THE MOVE IS LIKELY TO HELP THE GOVT ACHIEVE THE TARGET OF GROWING EXPORTS TO $1 LAKH CRORE IN THE NEXT FIVE YEARS