Reserve Bank of India governor Shaktikanta Das described the government’s move to slash corporate tax rate as a bold measure and said it has made India a very attractive destination for foreign investment. “It is a very bold measure, and it is a highly positive step. India’s corporate tax now becomes very attractive compared to other emerging market economies in Asean (Association of Southeast Asian Nations) and other parts of Asia. So far as FDI (foreign direct investment) is concerned, I think India stands definitely in a very competitive position and should be able to attract higher investments," Das said days before the monetary policy committee (MPC) meeting.
Called as the biggest reduction in 28 years, the government cut corporate tax rate by almost 10 percentage points as it looked to pull the economy out of a six-year low growth and a 45-year high unemployment rate by reviving private investments with a £14.5 billion tax break. Base corporate tax for existing companies has been reduced to 22% from the current 30%; and for new manufacturing firms, incorporated after October 1, 2019 and starting operations before March 31, 2023, it was slashed to 15% from the current 25%.
With regard to domestic investors, he said, “they now have more cash so they’ll be able to undertake more capital expenditure. They can invest more and some of them can deleverage their liabilities which will add strength to their balance sheets.” he said after meeting finance minister Nirmala Sitharaman. The governor said that the meeting with the finance minister was a customary meeting ahead of monetary policy meeting. “There is a long tradition that the governor meets the finance minister and discusses about the overall macro economic position. So today’s meeting was basically that,” he said.
Last week, Das had said the government has limited fiscal space to support growth, but low inflation can help the monetary authority ease policy rates further and boost economy. The RBI has already cut rates four times to the tune of 110 basis points this year to push growth. “Today, when we see that the price stability is maintained and inflation is much below 4% and is expected to be so in the next 12 months horizon, there is room for (more) rate cuts, especially when growth has slowed down,” Das had said.
However, he refused to share RBI’s revised growth projection, stating that it will go public with the revised numbers at the upcoming monetary policy announcement on October 4.