Arvind Virmani, a member of NITI Aayog, has pointed out the need for comprehensive tax reforms and an improved business environment in India, to bring manufacturing investments and boost economic growth. The current tax structure for manufacturing companies is that Existing companies are eligible for an estimated 25% income-tax rate under section 115BAA, whereas newly established manufacturing firms, formed after September 30, 2019, enjoy a reduced tax rate of 17%.
As the global economic domain continues to evolve, India stands at a crucial junction, trying to attract investments and boost its manufacturing sector. Arvind Virmani, a member of NITI Aayog, has highlighted the necessity for tax reforms to simplify the existing structure and enhance the ease of doing business. Virmani’s insights come against his positive view, anticipating a 7% growth for the Indian economy in the fiscal year 2024-2025.
Mr Virmani pictures this growth to be driven by a major recovery in the housing sector, by increased activity and private sector investments. The predicted growth in economic activity is further expected to be fueled by a mutual effect of enhanced public expenditure and ongoing government reforms. While acknowledging the foundation laid by post-2019 reforms, including labour reforms, Virmani stresses the necessity of further improvements in the tax structure and overall business environment.
Highlighting the significance of the recently introduced Labour Codes, Virmani identifies them as a crucial factor in attracting foreign direct investment (FDI) to India. He desires instant implementation of the codes once all states come on board, marking their potential to be a game-changer in enhancing the attractiveness of India as an investment destination.
Mr Virmani specifically points to the Goods & Services Tax (GST) and the Insolvency and Bankruptcy Code (IBC) as areas necessitating changes. Simplifying and streamlining these tax mechanisms would not only make the system more efficient but also provide a much-needed boost to micro, small, and medium enterprises (MSMEs). Virmani stresses the importance of revisiting penalty-related tax provisions, referring to their impact on the ease of doing business.
Addressing the ongoing global shift in the supply chain, Mr Virmani recognizes India as the ultimate beneficiary of the ‘China plus one’ strategy in the long run. While acknowledging the short-term advantages of countries like Vietnam, Thailand, and Mexico due to their closeness to China and trade agreements, Mr Virmani highlights India’s exceptional market size, population, land area, workforce potential, and demography. He claims that these factors position India as the unavoidable choice for companies seeking an essential shift from China.
Despite the positive angles, Mr Virmani admits that India faces challenges in reforming its tax structure and improving the ease of doing business. He calls for a joint effort by the government to address these challenges, recognizing them as critical to releasing the full potential of the Indian economy.
