New Delhi: Even as the industry and consumers alike are hailing the announcement by Finance Minister Nirmala Sitharaman of a drastic cut in corporate tax rates, the opposition comprising the Congress and Communist Party of India (Marxist) [CPI(M)] are complaining.
Markets roared back to life today, with the Sensex posting its biggest single-day jump in over a decade at 1,921 points and investors’ wealth soaring by a staggering Rs 6.8 lakh crore, after the Sitharaman delivered a surprise cut in corporate tax rates.
Announcing the latest set of measures to jump-start flagging growth, Sitharaman slashed the base corporate tax for existing companies to 22% from 30%; and for new manufacturing firms, incorporated after 1 October this year, to 15% from 25%.
Bulls took over the market soon after the announcements. The 30-share BSE Sensex soared 2,284.55 points to a peak of 38,378.02 intra-day, before settling 1,921.15 points or 5.32% higher at 38,014.62. Similarly, the broader NSE Nifty zoomed 569.40 points or 5.32% to end at 11,274.20.
Announcement by Sitharaman followed by richness in market
The market capitalisation of BSE-listed companies jumped to Rs 145,37,378 crore, from Rs 138,54,439 crore on Thursday.
Cash-market equity turnover on BSE and NSE nearly tripled to nearly Rs 90,000 crore, while derivatives turnover also zoomed to about Rs 2.4 lakh crore.
Top gainers in the Sensex pack included Hero MotoCorp, Maruti, IndusInd Bank, Bajaj Finance, SBI, M&M, HDFC Bank, HUL and L&T, rallying up to 12.52%.
On the other hand, PowerGrid, Infosys, TCS, NTPC and Tech Mahindra ended in the red, losing up to 2.39%.
Sectorally, BSE auto, bankex, capital goods, consumer durables, finance, energy, oil and gas, metal and telecom indices rallied up to 9.85%.
Only IT and tech closed in the red, losing up to 1.09%.
The broader BSE midcap and smallcap indices followed the benchmarks, surging up to 6.28%.
During the week, Sensex gained 629.63 points or 1.68%, while the Nifty advanced 198.30 points or 1.79%.
Meanwhile, the rupee strengthened 29 paise to 71.04 against US dollar intra-day.
Brent crude futures, the global oil benchmark, rose 0.64% to $ 64.84 per barrel.
On the global front, equities ticked higher amid optimism surrounding the US-China trade talks beginning next month. In Asia, the Shanghai Composite Index, Nikkei and Kospi ended on a positive note, while Hang Seng settled in the red. Stock exchanges in Europe were trading higher in their respective early sessions.
NITI follows Sitharaman with policy statement
NITI vice-chairman Rajiv Kumar Kumar today lauded the government’s decision to cut the corporate tax rate and exuded confidence that investors will take advantage of the measures announced by Sitharaman. “The finance minister’s announcement that those who invest between 1 October to 31 March 2020, their tax rate will only be 17% and with the surcharges about 25.17%, that’s a huge incentive,” Kumar said on the sidelines of an event organised by Public Affairs Forum of India (PAFI).
Kumar hoped the investors will take advantage of these measures and those who have been waiting on the fence will now jump to make investments. “I think this is a historical day and it shows the commitment of this government to promote and nurture private sector and that it believes that private enterprises will take the industry forward which will take the economy forward.
However, the government has come in for sharp criticism and even downright dismissal of the market and consumer sentiment.
Congress’s not impressed with Sitharaman
The Congress on Friday termed the corporate tax cut a “panic reaction” by the government and linked it to the ‘Howdy Modi’ event in Houston, with Rahul Gandhi saying he is amazed at what Narendra Modi can do for a “stock market bump” before the diaspora programme.
The opposition party also claimed that the Modi 2.0 dispensation has turned out to be an “economic and political disaster” and “constant rollbacks” of economic decisions will lead to worsening of the economic situation.
Modi Govt 2.0 has turned out to be an Economic & Political disaster for India.
The looming economic crisis is fast turning into ‘BJP-Made Economic Anarchy’.
Finance Minister, Smt Nirmala Sitharaman & her colleagues are marred by bankruptcy of ideas to revive the ailing economy. pic.twitter.com/5s1k1BZUs5
— Randeep Singh Surjewala (@rssurjewala) September 20, 2019
Congress’ chief spokesperson Randeep Surjewala said the announcement by Sitharaman to slash corporate tax worth Rs 1,45,000 crore a year is another “panic reaction to tide over choppy Sensex index, but its implications and substantive issues need to be answered by the Prime Minister and the Finance Minister not through event management but sound economic management. This government’s path is event management and economic mismanagement. Due to this path, clouds of an economic slowdown are hovering over the country. The BJP government is now recognised by slowdown and lockdown”.
Questioning the timing of the announcement by Sitharaman, the opposition party alleged that it has been dictated by Modi’s ‘HowdyModi’ event in the United States. Terming ‘HowdyModi’ the “world’s most expensive event ever”, Rahul Gandhi said he is “amazed” at what Prime Minister Modi is ready to do for a stock market bump ahead of the US event.
CPM floats conspiracy theory
The CPI(M) on Friday dubbed the government’s post-budget, economic stimulus announced by Sitharaman in the form of Rs 1.45-lakh crore tax break to corporates as an act of transferring the RBI reserves of Rs 1.76 lakh crore to India Inc after misappropriating it from the central bank.
In a statement, the party also asserted that the government’s bid to undo the Budget provisions cannot reverse the economic recession as “people do not have the money to buy what may be produced”.
The CPM said, “This RSS-BJP government through an ordinance has amended the Income Tax Act giving huge concessions to corporates and superrich to the tune of a whopping Rs. 1.45 lakh crores. This comes over and above the Rs 70,000 crore of concessions to the realty an exports sectors recently.”
“The misappropriation of the reserves of the Reserve Bank of India to the tune of Rs 1.76 lakh crore is now being transferred to the corporates instead of it being used for increasing public investments that will generate employment and increase people’s purchasing power,” the communist party said.
Asserting that India’s current economic recession in India has been caused by the lack of demand, the CPI(M) said, “These efforts reversing the budget announcements cannot reverse the economic recession as people simply do not have the money to buy what may be produced.”
“This is a massive concession of about 10 percentage points. Further, companies making fresh investments from 1 October will have the option of paying taxes of 17.01% inclusive of surcharges,” the CPI(M) said. “The budget announcement of an enhanced surcharge on capital gains has now been withdrawn providing a massive benefit to foreign portfolio investors. This comes on the eve of Modi’s visit to the US and his brazen attempt to woo portfolio investors from the US and the rest of the world,” it said.
The CPI(M) further said, “In a situation of alarmingly rising unemployment, layoffs, retrenchment and fall in real incomes of the working people, none of these measures can help improve people’s livelihood or reviving the economy.”
Notwithstanding the massive public spending announced by Sitharaman in the Budget this year, the CPM said, “What is needed is large doses of public investment to create employment and increase people’s purchasing power. The government is pursuing the exact opposite which is nothing else but loot of Indian money for the private corporate benefit and speculative profit.”
The CPI(M) said it was reiterating its demand that the Rs 1.76 lakh crore taken from the RBI reserves be used for public investment to build our much-needed infrastructure.
Former general secretary of the party Sitaram Yechury wrote about the announcement by Sitharaman on Twitter: “Enriching Corporates: Heaping Further Miseries on People. Misappropriation of RBI reserves of ₹1.76 lakh crore is now being transferred to corporates instead of it being used for increasing public investments that will generate employment & boost demand.”
Enriching Corporates: Heaping Further Miseries on People. Misappropriation of RBI reserves of ₹1.76 lakh crore is now being transferred to corporates instead of it being used for increasing public investments that will generate employment & boost demand https://t.co/DMZr9S4Mm5
— Sitaram Yechury (@SitaramYechury) September 20, 2019
Are consumers rich people, comrade?
In contrast to the opinion of the communists, makers of goods largely consumed by the middle class and the poor welcomed the announcement by Sitharaman.
Britannia called it a decisive leadership shown by the government. “It’s a concrete step to ease the current economic situation considering the present operating environment in the country,” said Varun Berry, managing director, Britannia Industries.
The biscuits major had earlier announced an increase in the prices of its products marginally in the third quarter of the current financial year.
Bengaluru-headquartered consumer care major Wipro Consumer Care said this step of reducing the corporation tax rate would provide a significant boost to the “Make in India” initiative. “This would spur the slowing economy and start attracting investments in the manufacturing sector. This would, in turn, create a positive upward cycle by creating jobs and stimulating demand,” said Raghav Swaminathan, chief financial officer, Wipro Enterprises.
“In our view, consumer companies are likely to partially cut prices. Thus optically demand can spur against current estimates. When GST rate cut happened in consumer goods, there was demand spurt that happened. While the environment is different now vis a vis then, but this notional saving or propensity to spur demand for consumer goods is likely,” said Abneesh Roy, research analyst, and executive VP, Institutional Equities, Edelweiss Securities Limited, about the press conference of Sitharaman that became the news of the day.
Undeterred, market experts cheer on
Tax incentives announced by the government will significantly boost investments, manufacturing and shipments in different sectors such as leather and footwear, exporters said on Friday.
Council for Leather Exports (CLE) Chairman Pararuna Aqeel said the series of direct tax incentives announced by Finance Minister Nirmala Sitharaman will boost growth, investment and innovation in the sector. “As about 92% of the leather and footwear industry is concentrated in the MSME segment. Lower tax slabs hold the key to achieve the envisaged growth and investment levels,” he said in a statement.
World trade information provider Connect2India said the move would give a big push to the ‘Make In India’ initiative, attracting investment as well as generating new employment opportunities.
“Lot of Indian products, including from MSMEs, have excellent quality; in a globally competitive market, the tax cut should help companies manufacturing these products become price competitive also, thus encouraging and increasing the export share of these products,” said Pawan Gupta, founder and CEO of Connect2India. He also said the CSR spends on IITs and NITs should aid innovation which is the need of the hour.
Driving MSMEs towards becoming globally competitive would be imperative in creating a long-term growth strategy for the sector and the recent announcements are positive steps in that direction, Gupta said.
Sharing similar views, Federation of Indian Export Organisations (FIEO) president SK Saraf said the timely move would help in attracting investment from companies in China that are looking for new destinations for expansion or starting a new venture with an eye on the US market. “It will encourage investment in the existing domestic companies also giving them the scale to cater to the huge market of US and China,” he said.
Tata, Goenka, even PSUs in celebratory mood
Commenting on the step to reduce the corporate tax rate, Tata Steel CEO and MD T V Narendran said it addresses the cost of doing business in India and is a positive for the companies operating in India currently and for foreign investors thinking of India as an investment destination.
“However, I guess the challenge for the government is to find alternative revenue streams to support the infrastructure expenditure being planned,” he said.
Industry chamber Assocham President BK Goenka said the mega Rs 1.45 lakh crore booster will revive global and domestic investment into the Indian economy, besides acting as a major catalyst for investors to consider India as a serious alternative for manufacturing base against the backdrop of US-China trade war.
Agarwal said the reduction in corporate tax and other fiscal measures will spur economic growth. “The move will definitely prove to be a huge impetus for the manufacturing and infrastructure sector. We are confident this step, in coming days, will boost economic growth so that GDP can attain its true potential of 8-9%,” he said.
Daksha Baxi, Partner, International Taxation, Cyril Amarchand Mangaldas said permitting the existing companies that are currently paying 34% tax to opt out of their tax holidays and pay 22% (net 25%) tax and not be subject to MAT will enable them to relook at their taxation structure to free up their cash flow which was adversely impacted due to MAT. “This will enable companies to re-invest, even in the form of setting up new companies for manufacturing activities and benefit from a lower tax rate of 17% (net) for such new companies,” Baxi said.
Dalmia Bharat Group MD Puneet Dalmia the Friday’s decisions will improve ability of India Inc to make fresh investments, speed up projects, and make a positive impact on job creation. “It’s a very bold move and will improve the sentiment dramatically,” Dalmia said.
Expressing hope that the deep tax cut will be a fillip for the flagging economy, Fortis Healthcare MD and CEO Ashutosh Raghuvanshi said the development is a significant move to boost economic growth.
JSW Chairman and Managing Director Sajjan Jindal said the major announcement would not only revive the sentiment but also enhance the competitiveness of the Indian industries.
JSPL Chairman Naveen Jindal said that the tax cut will bring in more investments in the manufacturing sector and create significant employment opportunities.
Jindal Stainless Limited MD Abhyuday Jindal said, “It is a thoughtful move by the Ministry of Finance to reduce corporate tax to a significant degree. I’m looking forward to the positive impact it will have on the manufacturing sector, and eventually the markets.”
SAIL Chairman Anil Kumar Chaudhary said, “It is a welcome move which will bring in investment in new projects from freed up cash leading to employment opportunities, manufacturing growth and stimulus towards higher consumption. This move is surely expected to have a positive effect on the Steel Industry which has strong forward and backward linkages.”
Shyamal Mukherjee, Chairman, PwC India said the intent of the government towards a softer tax regime is welcome and a step in the right direction. Gautam Mehra, Partner and Leader Tax and Regulatory, PwC India said the new tax measures are both path-breaking and bold. They give India a competitive slot amongst the leading economies of the world in the corporate tax rate table.
Harshavardhan Neotia, Chairman of Ambuja Neotia group, was of the opinion that the move signals the finance minister’s commitment for expansion of the economy, while Ajay Durrani, MD of Covestro India said the Indian tax level is now at par with the global tax level and will open doors for Indian companies to compete internationally.
Chairman and Managing Director of ReNew Power Sumant Sinha said “reasonable” tax rates also go a long way in ensuring better compliance.
Welcoming the measures, the Automotive Component Manufacturers Association of India (ACMA) President Deepak Jain said the steps in the right direction to give manufacturing, investments and economic activity a boost. The measures will also put India in the league of competitive economies in the world, he added.
In the views of Aditya Ghosh, CEO, OYO India and South Asia, the government’s decision just ahead of the festive season has given a triple booster dose to the economy.
According to him, the decision will increase the retained earnings of the companies which will result in investible surplus for the future, shift India at par with its regional peers thereby removing one of the issues related to manufacturing and exports and maintain macroeconomic prudence by continuing to stimulate the investment cycle.
Industry chamber PHDCCI said the government’s decision will not only boost the business sentiments but also go a long way to strengthen India’s journey towards a $ 5 trillion economy by 2024-25 and $ 10 trillion economy by 2030.
Telecom sounds morose
A jarring note in the industry was struck by telecom companies, though. The government’s move to lower corporate tax to 22% is positive for the economy but there is no major benefit for the stressed telecom sector, according to industry body Cellular Operators Association of India.
“We appreciate the government’s intent to help businesses with the reduction in the corporate tax rate. The reduction is positive for the industry but when it comes to a specific sector like telecom, this does not translate into a major benefit. It is good for those who are making profits. Telecom players are making losses,” COAI Director General Rajan Mathews said.
The telecom sector has been asking for a reduction in licence fees, spectrum usage charges, goods and services tax (GST) and other charges as has been envisaged in the National Digital Communications Policy 2018.
“We have a problem in the top line where we are paying 30% tax to the government. We have been demanding the lowering of GST from 18 to 12%. There is nothing left in bottom line. A total of Rs 35,000 crore of GST refund is pending with the government. Relief in income tax is of no use if our topline problem is not addressed.” Mathews said.
Except for Reliance Jio, all telecom operators including Bharti Airtel, Vodafone Idea, BSNL and MTNL are running in losses and laden with heavy debts.
Nevertheless, Airtel was upbeat today. “The slew of measures announced by the finance minister has come as a much-needed gust of fresh air to resurrect and pump-prime the economy. The bold and positive move to rationalise the corporate tax structure will help kick-start the next big economic upcycle,” Bharti Enterprises founder and Chairman Sunil Bharti Mittal said in a statement.
Mittal said the move underlines the intent of the government under the leadership of Prime Minister Narendra Modi to maintain India’s position as the hottest investment destination in the middle of adverse global developments and a slowing world economy.