The swingeing corporate income tax cuts announced by Union finance minister Nirmala Sitharaman on September 20 were long overdue. They should have been announced in the first Union budget of the BJP-led NDA government 2.0 which swept General Election 2019 with a massive majority in May. Instead the BJP which effectively calls the shots in the ruling coalition, lost its electoral momentum by indulging in petty caste and communal politicking, abrogation of Article 370 and amalgamation of the Kashmir Valley into the Indian Union, issues. In the final analysis the tiny Kashmir Valley is peripheral to post-independence India’s national development effort.
To his credit, Shyama Prasad Mookerjee, one of the founders of the opposition Jan Sangh, progenitor political party of the ruling BJP, resigned from free India’s first Congress government because of his opposition to Nehruvian socialism. Instead of learning the virtues of free enterprise and free markets from Mookerjee and other pro-private enterprise national leaders such as Vallabhbhai Patel and Rajaji (C.R. Rajagoplachari), the BJP leadership has foolishly continued to govern by neta-babu socialism. PSEs continue to swallow rivers of resources to produce a trickle of mouldy goods and services. Taxes and jobs generating industry and business entrepreneurs are demonised and subjected to tax terrorism by business-illiterate, venal bureaucrats (over 75 income tax officers have been compulsorily retired — instead of being criminally prosecuted — for corruption in the past six months).
Moreover unproductive expenditure on defence has increased sharply and potential nation-building energy is being wasted in maintaining law and order in the Kashmir Valley. The simple solution that the Valley should be expelled from the Indian Union and its incorrigibly communal people left to stew in their own sectarian juice, is anathema to the BJP leadership.
In the circumstances, slashing income tax payable by corporates and manufacturing start-ups by an unprecedented 10 percent will enable India Inc to retain Rs.1.45 lakh crore by way of government revenue foregone, and give a healthy boost to flagging industrial investment. The country’s media pundits often forget that corporates are more likely to invest their business surpluses prudently by adding capacity and investing in other employment-generating business activities, than government.
Conterminously it’s important for Sitharaman to appreciate that falling aggregate demand is also a prime cause of the malaise afflicting the economy. Freedom and ease of doing business in rural India to boost rural purchasing power is the other side of the liberalisation coin. Capping prices and banning exports of agriculture produce when prices rise — as in the case of onions currently — is inimical to boosting rural purchasing power.