Given her recent preoccupation with the media delivering a press conference a week for many weeks on the trot, many wondered whether she was conscious of the famed Law of Diminishing Marginal Utility catching up on her. But she has shown that she does not need to follow the script. She can write her own script.
Her fetish for quoting the media has perhaps generated today the biggest business headline in a decade. There are equally important sub-headlines there as well that have far-reaching bearings on the India growth story. In this case, even her worst critics would not just call the policy statement an act of headline management.
Nirmala Sitharaman, the newsmaker of the day, has scripted a new chapter in India’s economic policy management.
In a historic bold move, the finance minister made several announcements for the corporate sector. Sharp cuts in corporate tax are among a series of announcements.
Outdoing her predecessors
Sitharaman has done what her predecessors over the decades have not been able to do. They might have either expressed the intent or laid the roadmap, but it is under her stewardship as finance minister that India Inc has received the biggest ever bonus from the government.
The slew of measures announced are set to act as a force-multiplier for the flagging economic engine. The government has rolled out a red carpet that would promise hundreds of billions of dollars of FDI and FII flows over the medium term by slashing corporate tax rate to 25 percent from 30 percent (and 22 percent without exemptions) for existing domestic companies; and an extremely attractive rate of 15 percent for new companies setting up manufacturing operations after October 1, 2019 and commencing operations before 2023.
Expectedly, there is talk that the animal spirit has been unleashed.
It is early Diwali for the stock markets. Sensex ended 1,921 points higher at 38,015, while the broader Nifty50 index added 569 points to end the day at 11,274.
BSE Sensex and the NSE Nifty posted their biggest single-day gains in 10 years. Sensex ranged 2285 points in intra-day trade, while Nifty also traded in a range of 677 points. The Nifty Bank index traded in a range of over 600 points.
The record high margin observed at Sensex in a decade reflects the sentiment quotient of the policy reform. But the sub-text is critical to underscore for the intrinsic value the reform holds for enabling the India growth story.
Beyond Dalal Street
Dalal Street bullishness doesn’t capture the full story. A government, powered into its second term with an unprecedented mandate, should not in the first place have been battling the charge that it had failed on the economy front.
Opinion pieces hailed Prime Minister Narendra Modi for his foreign and domestic security policy on completion of 100 days of government but, rightly or wrongly, lamented the lack of animal spirit in economic management. Critics of Modi, in fact, used the opportunity to position him as a leader who was simply not up to the task when it came to driving economic policy in the right direction.
The government’s initial reluctance to publicly own up the rather dismal pointers on the economy led to some of these charges sticking and then the finance minister got into action. Her approach was incremental as she came out in the open listening to discordant notes on the economy and trying to address them one by one.
But given the mandate, the ‘band aid’ approach, as critics of this government labelled her press conferences, failed to create the right momentum. Having been fed on the T-20 diet, India’s patience with the Test match approach (actually this government is in for just three months) seemed to be running out.
This put due or undue pressure on the FM. Global economic trends, one after the other, didn’t help either. The oil price spurt due to loss of production added to the negative sentiment. On Friday, Sitharaman has done a surgical strike against the negative sentiment.
Bharti Airtel boss Sunil Bharti Mittal said the measures clearly underline the resolve of the government to maintain India’s position as the hottest investment destination in the middle of adverse global developments and a slowing world economy. “Landmark measures announced today to spur economic growth in the country. The revised tax rate will encourage new investments from MSMES and start-ups,” concurred Vedanta Chairman Anil Agarwal.
While there is all round appreciation of the tax cut move, it is important to see the decision in the light of changing contours of the political economy. Modi 1.0 was expected to be pro-business and pro-reform but somewhere early on Modi saw greater merit in welfare economics junking his assiduously built reputation of being a market economics champion.
Modi 2.0
In Friday’s move, Modi has demonstrated his ability to switch gears and unleash the business reformer in himself. He laid the foundation for the key policy decision today on August 15 when during his Independence Day speech he hailed the role of corporate India likening it to freedom fighters.
With this reform, Modi and his FM have padded up for any potential criticism (very likely from the opposition) that it is a ‘suit boot ki sarkar’. Expectedly, Rahul Gandhi, is out with his volley of charges. “Amazing what PM is ready to do for a stock market bump during his #HowdyIndianEconomy jamboree,” he tweeted.
That is why it is now the turn of corporate India to shed any excuse of not being an equal stakeholder in the India growth story. It has to invest wholeheartedly in the idea called growth. Corporate leaders have to see tremendous value in the 15 per cent tax slab for new businesses.
India Inc’s decadal demand has been met. All these years on the budget day, business leaders tactfully rate the budget as being good to very good (very rarely do you see a business leader ever lambast a budget in public or even in private). But when the cameras are out, they lament the ‘high’ corporate tax. Now that episode is over and hopefully we would have the business community seizing the opportunity with both hands. Then only will the excitement endure and move well beyond the Dalal Street.
Then, of course questions remain over the issue of funding the revenue shortfall. Experts are divided on the size of the shortfall predicted by the finance minister. Sitharaman said the total revenue forgone on account of today's measures would be Rs 1.45 trillion per year.
The math over the loss can wait. What cannot wait is the need to be doubly efficient in terms of government spending. Having drawn the new paradigm, it is high time to draw the fine balance between welfare economics and market economics. Loan melas are not necessarily a great idea.
Time for India to stand on its own feet, whatever it takes! Now or never!
Rakesh Khar is senior editor, Special Projects, Network 18. He writes at the intersection of politics and economy.
