India shares jump 5% as govt cuts corporate tax rates

Vishal Manve
This year India lost its status as the fastest-growing major economy to China

Indian shares jumped almost five percent on Friday after the government announced it was slashing corporate taxes in an effort to boost the sagging economy.

In Mumbai just before midday (0630 GMT) the main Sensex index was up 1,841 points or 4.87 percent at 37,850 points. The Nifty 50 was up 513 points or 4.81 percent at 11.220 points.

This year India lost its status as the fastest-growing major economy to China, and in the last quarter -- from April to June -- gross domestic product (GDP) expanded by just 5.0 percent.

In the latest of a series of announcements since Prime Minister Narendra Modi won a second term in May, Finance Minister Nirmala Sitharaman said that the main corporate tax rate for domestic firms would be cut to 22 percent from 30 percent.

Sitharaman told reporters that the new rates would be "comparable with the lowest tax rates in South Asian region and in South East Asia".

The Indian economy has been suffering from weak consumer demand with car sales in the world's number four automobile market plunging 41 percent in August, the worst monthly fall on record.

The government, while pinning some of the blame on ride-hailing services like Uber, has attempted to help the sector by lifting a ban on purchasing new vehicles by government departments.

It has also sought to jumpstart lending by lenders -- which are suffocating under a mountain of bad debt -- by announcing the mergers of 10 state banks.

New Delhi has also brought forward a $10-billion liquidity lifeline for credit-shy banks and rolled back an extra levy on equity sales that had spooked foreign investors.

India's central bank, reportedly under government pressure, has cut interest rates four times this year to a nine-year low in an attempt to boost growth.

The central bank, the Reserve Bank of India (RBI), last month also announced a $24-billion windfall for the government which will give it extra fiscal leeway.

On Saturday, Sitharaman also announced mega shopping festivals on the lines of popular Dubai Shopping Festival to attract capital and tourists and boost economic activity.

India's right-wing government led by Modi won a landslide election victory in May even though its economic record has been patchy, with unemployment at its worst since the 1970s.

The government has also easing restrictions on foreign investment in four key sectors, including coal mining, in an effort to attract more capital from abroad.

Ashutosh Datar, an independent economist, told AFP that tax cuts were "long overdue as India has one of the highest tax rates in the world".

"It will boost Indian economy's fundamentals and help markets and investors in the long-run," he said.

Rajiv Singh from Karvy Stock Broking said that after a number of "minor" changes, the government has finally announced "a bold and major measure to revive animal spirits".