In Mint, Niranjan Rajadhyaksha writes on how a lower cost of capital would help India plug into global supply chains and fuel domestic private sector investment. Excerpts:
"The cut in corporate tax rates was long overdue. The corporate tax rate is lower than the top marginal income tax rate in most countries. India brought down its top marginal income tax rate in 1997, when P. Chidambaram was finance minister in the government led by H.D. Deve Gowda. The corporate tax rate was not touched till recently.
The initial fear was that a cut in corporate tax rates, soon after a reduction in income tax rates, would entail heavy revenue losses. The issue remained on the back burner after that because the Indian economy had a dream run in the four years before the North Atlantic financial crisis. Indian companies were doing fine even at the old tax rate. But India has seen a private sector investment drought for nearly a decade now, and the cost of capital needs to be brought down. Most economists agree that a strong economic recovery will have to be supported by a private sector investment revival..."
Read the whole article here.