Bold decision: RBI Governor welcomes Centre’s proposal to slash corporate tax for domestic firms

Reserve Bank of India Governor Shaktikanta Das

The Governor of Reserve Bank of India, Shaktikanta Das, on Friday welcomed the Finance Ministry’s decision to slash effective corporate tax to 25.17 per cent inclusive of all cess and surcharges for domestic firms. Union Finance Minister Nirmala Sitharaman announced that the new tax will be applicable from the current fiscal which began on April 1.

While speaking at the India Today Conclave in this regard, Das said the measures taken by the government will "help revive the economy".

"This is a bold and welcome decision. During Arun Jaitley’s tenure as FM (Finance Minister), the corporate tax was reduced from 30 to 25 per cent. This was one of the hurdles, and the measures will help revive the economy," the RBI Governor said.

Responding to a question on the economic slowdown, Das said the situation is the same in "almost all advanced economies".

"The growth has slowed down across the globe. The second quarter in almost all advanced economies has shown signs of deacceleration. Almost all central banks across the globe are in an accommodative mode and are cutting interest rates," he said.

Defending the series of repo rate cuts, Das said more can be expected depending on the incoming data.

"We can’t go back to Fed like rates. We don’t know what a real effective interest rate will be like, because the law of the land mandates the RBI to ensure price stability. But how much lower we can go down depends upon the data we gather on the economy. India can’t be compared with advanced economies. I want to assure that we are not targeting a 2 per cent growth. In India, inflation target is 2 per cent, while in advanced economies, inflation is almost zero," he said.

He had earlier hinted that there could be more reduction in the policy rate in the near future in the wake of low inflation and the deepening slowdown in the economy. When we see that the price stability is maintained and inflation is much below the 4-per cent mandate and is expected to be so in the next 12-month horizon, there s a room for more rate cuts especially when growth has slowed down, Das had said at the India Economic Summit of Bloomberg.

The central bank head also expressed hoped that the GDP in the second quarter would improve given the measures taken by the government.

Shared his views on the autonomy of the central institution, Das said "it’s important to explain your position and not stop conversation".

"Difference of opinions between the monetary authority and the government happens in every country, and when it happens, it’s important to explain your position and not stop conversation. Because the government is sovereign, and the RBI is a part of that," Das said.

"So far as the decision making concerned, I can tell you with confidence that the RBI has full autonomy on taking decisions related to the economy," he added.

Weak manufacturing and consumption numbers dragged the country s GDP growth to a six-year low of 5 per cent in the first quarter (April-June) of the current fiscal, data released by National Statistical Office (NSO) has shown. The GDP growth rate has now slowed for the fifth consecutive quarter with the previous low recorded at 4.3 per cent in March 2013.