Corporate tax cut: Nirmala Sitharaman silences doubters, changes perception around the state of the Indian economy

Until yesterday, Nirmala Sitharaman was being criticised for not having the vision and ability to be at the helm of the finance ministry. More so when the Indian economy was showing signs of a slowdown. But a day is a long time in politics. The perception around the first full-time woman finance minister has changed overnight; another example of the ability of the government of Prime Minister Narendra Modi to deal with the emerging economic situation and being receptive to ground realities.

It all changed in a single stroke: A surprise announcement of a bold and brave decision to slash corporate tax rates to 22 percent for domestic companies and 15 percent for new domestic manufacturing companies, along with some other fiscal relief.

File image of finance minister Nirmala Sitharaman. PTI

The element of surprise has been the USP of Modi government, but Friday’s announcement has greater importance than some of the surprises which Modi government has sprung during its terms. This one impacts the economy and polity.

Related Articles

PM Modi to chair 8th governing council meeting of NITI Aayog today

'PM Modi asked us to think about next 25 years', says EAM Jaishankar

It is noteworthy that the government took the ordinance route, the Taxation Laws (Amendment) Ordinance 2019, months after presenting the full annual Budget to make certain amendments in the Income Tax Act, 1961 and the Finance (No. 2) Act 2019 to give a boost to India Inc. This, itself, is a rarity.

While the government has not made it clear as to when the decision was taken, it can be safely assumed that the decision to bring the ordinance was taken in the Union Cabinet meet chaired by the prime minister on Wednesday, in which e-cigarettes were also banned (again through an ordinance). But what followed was total secrecy about the proposed amendments.

Interestingly, both big decisions, e-cigarettes and reducing corporate tax, were announced by Sitharaman, first as chairperson of the Group of Ministers and second as finance minister, Which was enough to transform Sitharaman’s public perception, and more so, her perception among business and industry.

On Wednesday, Sitharaman was in a Twitter spat with Kiran Mazumdar Shaw, chairperson and managing director, Biocon.

Sitharaman responded:

But Shaw's question on "reviving economy" remained etched in public memory.

On Friday, soon after Sitharaman announced cut in corporate tax rates and ordinance to amend Income Tax Act and Finance Act, Shaw praised the finance minister:

And Shaw wasn't alone. Captains of industry and businessmen took to social media to compliment Sitharaman and the Modi government. Market sentiment and, to an extent, popular sentiment, particularly of those investing in the stock market and mutual funds, about the state of the economy changed almost instantaneously. The BSE Sensex jumped 1,921 points, the best the past decade. The Nifty surged 5.32 percent.

The story of the day was 1.45 lakh crore (total revenue foregone for the reduction in corporate tax rate and other relief estimated at Rs 1,45,000 crore) stimulus package announced by Sitharaman and the stock market's response. While the bulls and bears may not reflect the state of the economy, it helps build sentiment and perception. All this on a day when Modi is set to leave for a week-long trip to the United States.

Modi has a packed schedule with the much-hyped 'Howdy Modi' event with President Donald Trump and address to the United Nations General Assembly and a series of bilateral, multilateral and business meetings. Modi will now leave on a high and will have a lot more to offer to potential investors and make a solid case for Make in India.

Modi tweeted:

Amit Shah tweeted:

The Modi government and Sitharaman, naturally, are basking in the glory of the immediate impact of their announcement. While it may take time to get the economy back on a high trajectory of growth, but the boldness and swiftness of the move shows the Modi government has its finger on the pulse of the public and has the guts to take corrective measures.