These two successive tax-related events will play a decisive role in the future of Indias economy.
Business tax cuts are mixed
Speaking of Indias current reduction in corporate tariffs, the outside world is more convinced that this is the Indian governments initiative to boost its economy. Standard Chartered Bank said in a report that the tax cut would have a significant impact on Indias economy.
PricewaterhouseCoopers Indian company executive Darcy also said that the current Indian economic growth is facing greater downward pressure, in this context, the voice of enterprises to promote tax reform is very strong.
Data show that Indias GDP growth has fallen for six consecutive quarters as of the first half of 2019. In the second quarter of this year, Indias economic growth rate was 5%, the lowest in nearly six years.
Many of the tax cuts implemented by Indias Ministry of Finance are beyond the expectations of the outside world, which can be said to bring great surprises to the industry. According to the Financial Times, This is the first time since Indias independence that the Indian government has cut corporate tax rates to the lowest level in history.
Kumar, vice chairman of Indias National Transition Commission, said tax cuts in India would help improve the business environment of companies. Indias economy is expected to rebound after the bottoms of the first two quarters of this year, with GDP growth reaching a high of 7% to 7.5% in the second half of this year.
Although this will effectively boost Indias GDP, it will also cause financial problems for the Indian government.
Nirmala Sitharaman, Indias finance minister, said the tax cuts would result in a total loss of revenue to the Indian government of 1.45 trillion rupees (about $20.5 billion). At present, Indias finance is in a weak state, and the introduction of tax cuts will probably prevent the Indian government from achieving its fiscal deficit target of 3.3% in fiscal year 2019-2020.
Moodys also said that Indias ongoing tax cuts would significantly increase the fiscal risk of the Indian government, leading to a cumulative fiscal deficit that could eventually drag down sovereign credit ratings. In addition, Moodys said tax cuts had limited impact on relieving rural credit pressure and weak consumer sentiment.
US-India Tariff or Negotiation
In an official report this year, the United States said that Indias tariff rates on other members of the World Trade Organization (WTO) remained the highest among the major economies. Trump was therefore dissatisfied.
The BBC also made a comparison in its September 23 report. Data show that Indias average tariff rate in 2018 was 17.1%, significantly higher than that of developed economies such as the United States, Japan and the European Union, all of which had tariff rates ranging from 3.4% to 5.2%. Indias tariffs are also higher than those of other emerging economies.
In March 2018, the United States announced tariffs of 25% and 10% on Indian steel and aluminium products, respectively. India expressed dissatisfaction with this and negotiated with the United States, but it has not been able to negotiate. Until June, India raised tariffs on 28 products in the United States, including almonds, walnuts, apples and steel. Among them, the tariff on walnuts in the United States increased to 120%, and the tariff on chickpeas and some types of lentils increased to 70%.
As soon as the news came out, Trump said on the social networking site that he needed to talk to Moody about tariffs. Trump wrote on Twitter: I look forward to talking to Indian Prime Minister Moody about this. India has imposed high tariffs on the United States for many years and recently raised tariffs further. This is unacceptable. Such tariffs should be abolished!
Prior to that, the United States and India had not negotiated tariffs at the G20 summit in Osaka.
So this week, the United States and India decided to have a good chat.
On September 21, Moody traveled to Houston, USA, and appeared with Trump at the NRG Stadium of the Super Bowl, where 50,000 Indian Americans welcomed him. They even went around the stadium hand in hand.
According to CNN news on September 23, Moody also praised Trump after meeting: Trump is the best friend with India and a true friend of India among all the presidents of the United States.
Therefore, the BBC speculated in its report that India and the United States are likely to negotiate tariffs during Moodys visit to the United States.