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| 24 November, 2020, 08:44 PM IST | E-Paper
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It’s a bazooka, should revive animal spirits in economy, says Dalal Street

Synopsis

The rate of Minimum Alternative Tax has been reduced from 18.5 per cent to 15 per cent.

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Sitharaman on Friday proposed to slash corporate tax for domestic and new local manufacturing companies.
Mumbai: Analysts applauded Finance Minister Nirmala Sitharaman’s corporate tax cuts and said they were a step towards reviving animal spirits in a sluggish Indian economy.

Sitharaman on Friday proposed to slash corporate tax for domestic and new local manufacturing companies. The effective rate will be 25.17 per cent, including surcharges and cess. The measures will be implemented through an ordinance, she said.

“It’s a very essential measure. It will revive animal spirits in the economy. Also, the MAT announcement is very positive,” said Deven Choksey, Group Managing Director at KR Choksey Investment Managers.

“FIIs (foreign institutional investors) will look at India closely as tax rates here are getting very comparable to global standards,” he said.

The FM said the new provision has been inserted into the Income-Tax Act with effect from fiscal year 2019-20 to promote growth. It will allow any domestic company to pay income-tax at 22 per cent subject to the condition that it will not avail any other incentive or exemptions The rate of Minimum Alternative Tax (MAT) has been reduced from 18.5 per cent to 15 per cent. The objective is to provide relief to companies that continue to avail exemptions and incentives, the Finance Minister said.

“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,” said Ajay Bodke CEO of portfolio management services at Prabhudas Lilladher.

“By slashing corporate tax rates, the government has rolled out a red carpet that would ensure hundreds of billions of dollars in FDI and FII flows over the medium term. It is in a true sense an early arrival of festival of lights (Diwali) and banishment of long period of darkness & gloom bothering the Indian economy,” Bodke said.

In reaction, benchmark equity indices Sensex and Nifty rallied more than 4 per cent each, logging strong gains on the bourses after a long hiatus.

“After a number of minor measures, the government has announced a bold and major package to revive animal spirits. The high corporate tax rate meant that Indian companies were not competitive and this move helps address this and shall also boost FDI,” said Rajiv Singh, CEO of Karvy Stock Broking.

“Reduction of corporate tax has been on the agenda for a while, and this should help in boosting the capex cycle, also it gives companies space to cut prices to boost demand. The corporate tax cut should go a long way in a revival of the economy,” he said.

Singh expects banking, FMCG, consumer durables, and auto companies to be major beneficiaries of the tax moves. “The manufacturing sector will become attractive with a 15 per cent corporate tax rate for new manufacturing companies in India especially in the times when the world is in the phase of trade wars,” he said.

Others echoed similar sentiments. “It’s a big bazooka and a very positive step,” Vaibhav Sanghavi, co-CEO, Avendus Capital Public Markets Alternative Strategies. “It has the capability of reviving the economy,” he added.

“The government has taken a bold and proactive step to bring much needed tax reforms , which will boost investment and also aid to private cycle capex,’ said Sanjeev Hota, Head of Research, Sharekhan. “The lowering of corporate tax rate will also widen the tax net and will gradually bring more revenues to government. Overall, the move will make Indian companies globally competitive, a welcome step to arrest slowdown and lift up the market sentiments,’ he said.

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7 Comments on this Story

tapan sur430 days ago
Bazooka, Animal spirit, all nonsense talk. The animal spirit is a dog eat dog syndrome, do we want that in our economy, benefiting only a few? The economy should be built horizontally rather than vertically in a country as diverse as ours. So now wait for The end of PSU say from 10 to only one, while the rich who owned 10 cars will now own 11, those who owned 10 houses may now own 11. When cancer sets in, you don''t treat problem you treat bigger problem. BOL.
Venkatesha Gupta431 days ago
Is D street everything for the Economy? Whether the beneficiary companies pass on the benefit to user public? How long it will take the bold and unprecedented move by the Government to translate into anticipated outcome? Besides, it is but appropriate for the Govt. to similarly tweak the personal I.T. rates to improve the purchasing power of the middle class towards the same objective.
Vedantham Sheshashar431 days ago
Today''s upward movement in share index is only a sentimental. Actual gain in each stock will depend on the effect of these announcements, which will get reflected on Monday or Tuesday.