Omkar Dattatray We are living in a global village. There is cut-throat competition in the business and industrial world. Only that country is successful which faces competition and is ever ready to plunge into competition and come victorious. Prime Minister Narendra Modi has shown skill in destroying conventional wisdom and narratives. A very few political leaders of the world democracies match the skills of Modi. Modi has established a stronghold in local politics. Modi has got a stronger mandate in 2019. The traditional wisdom has been defied in political economy and reforms. Many experts criticize big-bang reforms have not occurred, forgetting insolvency and bankruptcy code, goods and services tax, bank mergers, introduction of monetary policy and recent corporate tax reduction. Demonetization was criticized as failure, downplaying its effects on the growth in electronic payments, sliding investment demand in real estate and the jump in mutual fund inflows. The recent tax cuts have led to all-round celebrations and talk that this is a big step which was needed to accelerate growth and investment. The BJP and government are naturally on the same page and would color it as a magic wand to restore and revive economic growth. In all probability people will not rush to car showrooms to buy vehicles just because Indian companies now have a lower tax rate. It is in the fitness of things to consider background to India’s current economic problems. India is amidst credit squeeze compounded by non-banking financial companies (NBFC) crises and fears of default and liquidity issues. The country is also facing decline in investment with bleak chances of quick revival complicated by credit slowdown and banks reluctance to lend money to infrastructure and heavy industry. A deepening consumption slowdown has taken everybody by surprise. Tax cuts will increase profits and earnings. Share prices will increase and investors will invest in business and production. India is also facing investment slowdown with little chances of revival complicated by credit squeeze and banks reluctance to lend to infrastructure and heavy industry. Yes tax cuts will boost profits and earnings of the factors of production. It will increase prices; will bring money and investing public will not miss the opportunity to invest. However will it solve some of the problems noted above? Will it revive investment demand as people are predicting? Real estate needs a massive overhaul with the entry of investors with big pockets and required will to takeover and complete pending projects. Companies need to cut prices. The policy of holding on amidst stagnant or no sales growth and consumers anger over spiraling prices defies all logic. NBFCs are probably in a better position as they could use the extra money to pare down the debt and improve cash position. 15 percent tax on new companies setting up manufacturing units is a big and bold step. This is real and big reform. In one stroke it removes a major obstacle to competitiveness and make India attractive destination to many foreign firms. In fact we should plunge into and face the global competition boldly for the recovery and resilience of the economy. In brief, tax cut reduction on corporate sector is really a master stroke of Modi government which will spur economic growth and investment activity in the country. Thus, we will march in the global competitive environment and revive our economy to arrest the slowdown of the economy. Rest let us wait and watch how will the tax cuts help to give impetus to investment and growth of the economy. Let us hope for the best.
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