Corporate Tax Cut Was Needed To Spur Investment, Boost Growth, Says Chief Economic Adviser
Chief Economic Adviser Krishnamurthy Subramanian in New Delhi. (Photo: PTI)

Corporate Tax Cut Was Needed To Spur Investment, Boost Growth, Says Chief Economic Adviser


The corporate tax cut was required to boost investments as the virtual cycle that spurs growth in the economy wasn’t functioning as expected in in the last few quarters, Chief Economic Adviser Krishnamurthy Subramanian said Friday.

“For us (India) to achieve the goal of $5 trillion economy by 2024-25 and $10 trillion by 2030, we need to press the paddle on structural reforms," he said.

The economic survey released in July laid out strategic steps for India to become a $5 trillion economy with special emphasis on investment as the key driver for economic development with consumption being the force multiplier, Subramanian said.

"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 the 'India Economic Forum' organised by the Skoch Group in New Delhi.

"The anticipation of demand is what the companies use to make investments and that is how this virtual cycle goes. Over the last few quarters this virtual cycle is not moving as fast as it was when we were growing at 7 percent plus," he added.

Explaining tax dynamics for corporations, he said corporate tax is first paid by a firm and whatever is left as capital gains or dividends, the individuals are then taxed later.

"One of the important things to recognise is that there is double taxation, which is why, we at the government went ahead and reduced the corporate tax rates," Subramanian said.

Also read: Corporate Tax Cut Is A Signal To Structural Reforms, Says Chief Economic Advisor

The government has undertaken a number of measures to arrest growth slowdown. In September, it announced a cut in corporate tax rates to 22 percent from 30 percent. It also lowered the tax rate for new manufacturing companies to 15 percent to attract new foreign direct investments.

India’s GDP growth rate slowed to a six-year-low od 5 percent in the first quarter of 2019-20. The Q2 GDP data is scheduled to be released later today.

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