Tax Cuts Signal Modi Govt’s Change in Mindset Towards Pvt Sector

First time in six years of its regime, this dispensation has signalled the importance of private sector in growth.

FM Nirmala Sitharaman announced corporate tax cuts on Friday, 20 September.

(Photo: The Quint)

Video editor: Purnendu Pritam
Video producer: Anubhav Mishra

Following Finance Minister Nirmala Sitharaman's big bang announcements on the morning of Friday, 20 September, it is now being hotly discussed whether they will land a body blow on the looming economic slowdown.

Let us look into some of the major concerns that were affecting the economy and how Friday's announcements may address them:

Change in Mindset

The biggest takeaway from Friday's announcement is the visible change in Modi government's mindset, because for the first time in six years of its regime this dispensation has signalled the importance of private sector in the growth of the economy.

The government’s decisions assert that it is not possible to boost economic growth by simply pushing up government expenditure and thereby ignoring the private sector which constitutes 90 percent of the economy.

Boost to Investments

The sluggishness in investments were indeed slowing the markets down. The 10 percentage point cut in the corporate tax levied on domestic companies will render them richer.

As a result, these companies will either re-invest or slash the price of their products. In both cases, it will be useful to boost the sentiments

Jobs and Consumption

For the past few months, the pink papers have been publishing reports of job losses almost on a daily basis. The announcements made by the finance minister are expected to put an end to the bad news even as new hirings may still take some time.

On the consumption front too, buoyancy can be expected if companies decide to reduce prices of their products ,following the fresh stimulus. However, consumption may not reach the previous levels immediately.

Capital Markets Zoom, But Will It Sustain?

The equity markets witnessed a prompt turnaround with benchmark indices gaining record levels after the announcement. However, whether this mood among investors will sustain or not, remains to be seen.

This will also result in a positive wealth effect as the investors would feel richer after the surge in markets and they will not hesitate in spending a part of that.