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Published on 20/09/2019 12:09:49 PM | Source: Reuters

Expert Views: India cuts effective corporate tax rate to revive investment

India's government on Friday slashed corporate taxes in a surprise $20.5 billion break aimed at reviving private investment, seeking to lift growth from a six-year low that has sapped jobs and fuelled discontent in the countryside.

Finance Minister Nirmala Sitharaman told a news conference that the effective corporate tax rate will be lowered to around 25% from 30%, which she said would be on par with Asian peers.

SUVODEEP RAKSHIT, SENIOR ECONOMIST, KOTAK INSTITUTIONAL EQUITIES, MUMBAI

"It is a prudent move to reduce the corporate tax rates because it increases the retained earnings of the companies and forms the investible surplus for future."

"It also moves India to parity with its regional peers, thereby removing one of the issues related to manufacturing and exports."

"Further, the cuts maintain macro prudence by continuing to favour investment cycle rather than consumption cycle."

"On the flip side, it will negatively impact the bond market as the revenue forgone due to the tax rate reduction will make it difficult to stick to the GFD/GDP budgeted target."

SUNIL SHARMA, CHIEF INVESTMENT OFFICER, SANCTUM WEALTH MANAGEMENT, MUMBAI

"This was much needed and clearly demonstrates the commitment of the government to rejuvenate growth."

"With fiscal and monetary forces working in tandem and meaningful reforms being announced, and additional monetary easing on the way, we believe sentiments will bottom and begin to revive."

"The move in the markets in itself is a wealth effect and will spur further financialisation and efficient capital allocation."

A. PRASANNA, HEAD OF RESEARCH, ICICI SECURITIES PRIMARY DEALERSHIP PVT LTD, MUMBAI

"This is a long overdue and hugely positive move by the finance minister. Nearly 50% of the companies were paying effective tax rate of below 30% under current rules. The new rates simplify the tax architecture and will give a fillip to investments and jobs. This is the first concrete step towards realising Make in India."

"The fiscal impact will be large, but right now the need for economic recovery should take priority. I expect the RBI to accommodate this fiscal expansion via additional open market operations to keep interest rates in check."

MAHENDRA KUMAR JAJOO, HEAD OF FIXED INCOME, MIRAE ASSET GLOBAL INVESTMENTS, MUMBAI

"On one side is the reality that 1.45 trillion rupees is sacrificed. On the other side is the hope that it will be recovered through economic recovery."

"This kind of a revenue recovery will be pretty challenging. So right now, it is negative for bonds and positive for equity markets."

AJAY BODKE, CEO PMS, PRABHUDAS LILLADHER, MUMBAI

"In a major boost to revive flagging animal spirits and position India as one of the most attractive business destinations, the government has announced a slew of measures that would act as a force multiplier for the flagging economic engine. By slashing corporate tax rate to 25% from 35% (22% from 30% without exemptions) for existing domestic companies and an extremely attractive rate of 15% for new companies setting up manufacturing operations after Oct. 1, 2019 and commencing operations before 2023, the government has rolled out a red carpet that would ensure hundreds of billions of dollars of FDI and FII flows over the medium term."

(Reporting by Euan Rocha, Abhirup Roy, Neha Dasgupta, Chandini Monnappa and Chris Thomas in Mumbai, New Delhi and Bengaluru; compiled by Uttaresh.V)