Corporate tax cut key to investment, more structural reforms on cards: CEA

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Published: November 30, 2019 2:28:41 AM

Commenting on Sebi’s tightening of disclosure norms last week for defaults by companies, Subramanian said the move would make firms adhere to repayment timelines and instill more discipline into them.

Chief economic adviser Krishnamurthy V Subramanian, economyChief economic adviser Krishnamurthy V Subramanian

Chief economic adviser Krishnamurthy V Subramanian on Friday justified the need to cut the corporate tax sharply, stressing that it was important to draw more investments. He also advocated more structural reforms to meet the target of turning India into a $5-trillion economy in the next five years.

Subramanian conceded that the cycle of economic growth over the past few quarters has been below par but asserted that good days are ahead. The CEA’s defence of the corporate tax cut came amid criticism from some quarters that the government opted for a supply-side stimulus (the gross revenue forgone on account of this move is estimated to be `1.45 lakh crore in FY20) when it should have gone for measures to improve private demand that has been in doldrums, partly due to rural distress. For his part, the CEA has been pushing for an investment-led approach to growth for an economy like India, instead of a consumption one.

“Investment is important for enhancing productivity in the economy and it is productivity that eventually then improves wages, creates job, enhances exports and then the combination of all these gives the purchasing power in the hands of the consumers which is what manifests as demand,” he said at an event here, organised by Skoch Group.

Highlighting proposed structural reforms in factors of production, Subramanian said 40 labour laws have now been grouped into four codes, which will enable investment by reducing frictions between the employer and the employee.

Commenting on Sebi’s tightening of disclosure norms last week for defaults by companies, Subramanian said the move would make firms adhere to repayment timelines and instill more discipline into them. Investors must know about any technical default on loans by a company, as markets function on information.

After a board meeting last week, Sebi said any default in repayment of principal or interest to lenders by listed companies, which continues beyond 30 days from the pre-agreed payment date, will have to be disclosed to shareholders within 24 hours of such an event. The rule is scheduled to take effect on January 1, 2020.

The economy grew at 5% in the first quarter of 2019-20, the slowest pace in over six years, and the growth dropped even further to 4.5% in Q2.

The government has initiated a series of measures to reverse the slide, the most important being the cut in the standard corporate tax rate to 22% from 30%. It also trimmed the tax rate for new manufacturing companies to as low as 15% to woo foreign investors looking to shift away from China to beat the impact of the ongoing US-China trade war.

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