Investment Shy Corporates
Notwithstanding the huge cut in corporate tax aimed at boosting investment (announced during the 2019-20 budget), corporate tax collection contracted by 10 per cent in the first quarter of the ongoing fiscal. The shrinking tax revenue is indicative of the fact that the corporate sector has not reciprocated positively to the government’s effort to attract fresh investment by fixing tax rate at 25 per cent for all companies having annual turnover of upto INR 400 crore. The new corporate tax rate was expected to cover 99.3 per cent of all companies in India and bring about huge change in corporate investment. But the apathy shown by the corporate sector towards making new investments has made this plan futile. It is truly perplexing as to why the Indian corporate sector is still shying away from investing in the country despite the Indian economy growing faster than many of the world’s largest economies. Moreover, the Indian economy has made a remarkable turnaround after contracting by 25 per cent due to the pandemic-induced lockdown. Almost all steps taken by the government to prevent the economic downturn during the pandemic have yielded desired results barring the cut in corporate tax. Although the government is still hopeful that corporate revenue contraction is a temporary phenomenon and India will see an investment boom, it is unlikely that the investment drought will end soon, as the corporate sector is still highly reluctant to invest in India.
Following the introduction of the new economic policy in the nineties, the government of India has extended many SOPs (Standard Operating Procedure) to the corporate sector. Apart from tax reduction, the Centre has taken several steps including one window system and tax holidays to create an investor-friendly environment. For instance, to attract investment in the often neglected Northeastern region of the country, a five-year tax holiday was announced by the then Union Finance Minister Dr. Manmohan Singh. Later, similar offers were also extended to other regions of the country. However, despite the government’s many efforts the profit-driven corporate sector remained unimpressed and refrained from investing in those areas citing reasons such as low profitability, distance, etc.
It is time to remind the corporate sector on its responsibilities towards nation building. The practice of availing lower tax rate and ensuring higher profits cannot continue for an extended period of time, as the country needs investment from the corporate sector to be considered among the top economies of the world. On its part, the government has been spending on infrastructure to facilitate investment. India’s rank in the ease of doing business list has also been improving for the last few years. It is hoped that in the coming years infrastructure along with other facilities in the country will improve further and India will become a more investor-friendly destination. But all these efforts will not yield any dividends if the corporate sector continues to avoid investing in India. So, the corporate sector should take advantage of the lower tax rate and reinvest in the country that is helping them grow exponentially, before the Centre begins withdrawing SOPs for investment facilitation.