Indian Prime Minister Narendra Modi arrived in the United States yesterday for a seven-day visit, bringing to American investors the pitch that his country now boasts a corporate tax rate that is among the lowest in the world.
Analysts say recent reforms will help attract foreign investment and improve business sentiment at a time of slowing growth in the South Asian country that early this year lost the title of fastest-growing economy to China.
Finance Minister Nirmala Sitharaman had last Friday announced a slashing of the base corporate tax rate from 30 per cent to 22 per cent for all companies, in a move that saw the Sensex, the benchmark index of the Bombay Stock Exchange, climb 4.5 per cent. For manufacturing companies incorporated after Oct 1, the corporate tax rate was cut from 25 per cent to 15 per cent.
The cuts put India among countries with a low corporate tax rate.
The corporate tax rate in the US is 27 per cent, China 25 per cent, Malaysia 24 per cent and Singapore 17 per cent.
Professor N. R. Bhanumurthy of the National Institute of Public Finance and Policy in Delhi, said: "It will help in reviving investment demand. More importantly, it should help in attracting foreign investment. Right now, the economy is slowing down at a much faster pace than the government expected. The slowdown is both cyclical and structural. This should help the structural component."
Mr Modi was scheduled to take part in a round-table meeting with chief executives of energy companies. He will address an Indian diaspora event called Howdy Modi today, joined by United States President Donald Trump.
On Wednesday, he will deliver a keynote address at the plenary of the Bloomberg global business forum and participate in an investment round-table with over three dozen American corporate leaders.
Mr Trump, who has called India "tariff king", removed the South Asian country in June from a list of beneficiary developing nations under the Generalised System of Preferences programme that allows duty-free entry for up to US$5.6 billion (S$7.7 billion) worth of its annual exports to the US.
The issue of tariffs is expected to come up in talks.
But the cut in corporate tax, experts said, has given Mr Modi a chance to sell India as an investment destination.
"The reduction in corporate taxes will bring long-term FDI (foreign direct investment) into the country as India is now one of the lowest corporate tax countries in Asia and it will help Mr Modi make a powerful pitch to long-term investors in the US to set up industry under Make In India," said Mr Rishi Sahai, managing director of Cogence Advisors, an investment bank.
Make In India is a government initiative to push the Indian manufacturing industry.
"Even with an expected 5.5 per cent GDP (gross domestic product) growth in the current year, India is still the one bright spark for international investors in the global economy," added Mr Rishi.
Besides the cut in corporate tax rates, the government has, over the past two weeks, also announced a series of measures to stimulate the economy.
These included a rollback of super-rich surcharge, including for foreign portfolio investors, and a US$1.4 billion fund for stalled real estate projects.
Business houses and corporate honchos welcomed the move, but also expressed hopes of further reforms.
"It will catalyse investments, particularly in manufacturing, infuse huge confidence among investors, and set a new springboard for growth," said the Confederation of Indian Industry in a statement.
