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September 21, 2019

Under-pressure India slashes corporate taxes


September 21, 2019

Mumbai: India slashed corporate taxes on Friday to among the lowest in Asia as part of its drive to kickstart the stuttering economy, sending stock surging as analysts predicted a renewal of interest in the subcontinent.

Finance Minister Nirmala Sitharaman said the main rate for domestic firms would fall to 22 percent from 30 percent as New Delhi aims to attract companies spooked by the China-US trade war that has hammered global supply chains.

The move looks to give a lift to Prime Minister Narendra Modi who faces increasing pressure to relight once-stellar economy after five consecutive quarters of slowing growth saw India this year lose its status as the fastest-expanding major economy to China. Modi tweeted that the announcements "clearly demonstrate that our government is leaving no stone unturned to make India a better place to do business, improve opportunities for all sections of society and increase prosperity to make India a $5 Trillion economy." Sitharaman said that to "attract fresh investment in manufacturing and boost Make In India" the tax rate for new companies would be cut to 15 percent from 25 percent, the Press Trust of India news agency (PTI) said.

She told reporters the new rates would be "comparable with the lowest tax rates in South Asian region and in South East Asia". The announcement sent shares soaring more than five percent in Mumbai -- the biggest jump in 10 years -- while the rupee and firmed against the dollar.

Indian stock markets have been on course for the biggest quarterly exodus since at least 1999, with foreign funds having dumped a net $4.9 billion worth of stocks since June, Bloomberg News said.

Jeffrey Halley at OANDA said the cuts were "likely to re-energise investor interest in the sub-continent" after two and a half years "of slowing growth and disappointment in PM Modi´s reform progress".

Authorities have in recent weeks rolled out a series of measures to boost the economy and battle grinding unemployment, which is at its highest since the 1970s. Among its latest measures are lifting a ban on government departments buying new cars as it looks to support the auto sector, which saw sales dive 41 percent last month, the biggest drop on record.

The Reserve Bank of India (RBI) -- reportedly under government pressure -- has cut interest rates four times this year to a nine-year low, while New Delhi has also announced the merger of 10 state banks to try to crank up lending.

The government has also eased restrictions on foreign investment in four key sectors, including coal mining, in an effort to attract more overseas capital.

Rajiv Singh from Karvy Stock Broking added that after a number of "minor" changes, the government has finally announced "a bold and major measure to revive animal spirits". Including surcharges, the effective tax rate will be 25.17 per cent, down by almost 10 percentage points from 34.94 percent before, according to PTI.

Friday´s move will make it more tempting for foreign companies operating in China that have been hit by the China-US trade war, which has seen both sides impose tariffs on goods worth hundreds of billions of dollars.

India and the US are also engaged in a trade spat, something which Modi will be hoping to soothe when he meets President Donald Trump at a "Howdy, Modi!" rally of Indian-Americans in Houston on Sunday.

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