With the Govt. biting the bullet on tax rates, it's clear that markets have taken the news positively. The Indian Equity indices have rallied (perhaps like never before!) by more than 8% in just two days.
Indian corporate tax rates now match its emerging market peers - and it is believed that corporates will make more investments to boost the economy.
Remember the central bank has also aggressively reduced the interest rates in the system and is likely to do so even further.
So we have a situation where the tax rates and interest rates have both gone down. A good case to improve growth.
However, as the govt's collection of taxes goes down how will it match for the lower tax collections - where is money going to come from?
Analysts believe that as tax rates go down people tend to spend more and as a result tax collections go up (e.g. there is GST collected on monies which people spend buying goods and services). However this may come with a lag i.e. take time.
Till then Govt. may end up borrowing more - well may not be - as this year RBI has decided to give additional dividend to the Govt.
So it looks to be a good decision as of now. As the growth revives - so will sentiment and vice versa.
We will know in the coming months.
One thing is clear - the govt. as of now has given two clear signals
a) It will take steps mostly proactively.
b) It is not shy of taking bold decisions.
Result - India's competitive index is getting better.
(Disclaimer : For information purposes only and not to solicit any business)
Indian corporate tax rates now match its emerging market peers - and it is believed that corporates will make more investments to boost the economy.
Remember the central bank has also aggressively reduced the interest rates in the system and is likely to do so even further.
So we have a situation where the tax rates and interest rates have both gone down. A good case to improve growth.
However, as the govt's collection of taxes goes down how will it match for the lower tax collections - where is money going to come from?
Analysts believe that as tax rates go down people tend to spend more and as a result tax collections go up (e.g. there is GST collected on monies which people spend buying goods and services). However this may come with a lag i.e. take time.
Till then Govt. may end up borrowing more - well may not be - as this year RBI has decided to give additional dividend to the Govt.
So it looks to be a good decision as of now. As the growth revives - so will sentiment and vice versa.
We will know in the coming months.
One thing is clear - the govt. as of now has given two clear signals
a) It will take steps mostly proactively.
b) It is not shy of taking bold decisions.
Result - India's competitive index is getting better.
India - Global Competitiveness Rank (2006-2018)
