A few weeks ago, Finance Minister Nirmala Sitharaman announced that India was making radical changes to its corporate tax structure to boost the economy. This was touted as a mid-year Budget and the solution to the country’s economic woes. One part of that seems to be even more accurate than expected, while the other seems spectacularly wrong.

First, what was accurate: the characterisation of Sitharaman’s tax cuts as being like a Budget comes from the convention that changes to the tax code are usually kept for the Budget speech and Parliamentary session, which now takes place in February and March. The cuts amounted to much more than mere tinkering with the numbers, offering much lower rates on the condition that companies give up their other tax exemptions.

Moreover, that was not the only announcement the finance minister made. Over the last few months, a number of the big decisions made in the July Budget were rolled back. The government withdrew a surcharge on Foreign Portfolio Investors. It removed a provision from the Budget session that would have applied penal provisions to companies that miss their Corporate Social Responsibility targets. It offered a route for start-up firms to avoid being hit by the “Angel Tax”. It withdrew a surcharge on capital gains on equity for individual tax payers.


In other words, Sitharaman’s announcements also seem like a mini-Budget because they’ve involved doing away with many of the things she introduced in the actual Budget just a few months before.

From one angle, this is a good thing. It suggests that the government is nimble enough to make decisions mid-year, without feeling the need to wait until next February. Analysts have for decades argued that India’s Budget should not be a big deal: policy objectives and approaches should not depend so much on one single day and, over time, the government’s decisions shouldn’t matter so much to the wider economy. The latter might still be some time away, but the willingness to alter policy when necessary is a good thing.

On the other hand, it is not like this is a new government. Sure, this was Sitharaman’s first Budget as Finance Minister, but the team around her has been in place for some time, and surely Prime Minister Narendra Modi and his office was involved in the Budget decision-making. What does it say about his government, and particularly its unwillingness to recognise the economic malaise earlier, that so much of the Budget has now been rolled back?

Fleeting hope

The other aspect is the spectacularly wrong bit: the tax cuts were supposed to be an indication that maybe the Indian economy had found a way to climb out of the hole of the last few years. There were concerns that may blow a hole in the fiscal deficit and that corporations might choose to hold on to the savings rather than put them into the economy, but in general they were expected to boost business sentiments.

Here’s Business Standard’s lead story from Thursday: “Stock prices of nearly half of the BSE500 firms back to pre-tax cut levels.” Indeed, the markets that were initially euphoric over the tax cuts have tempered their glee, partly because of fears of a contagion spreading through financial institutions and also as clarifications have made it evident that the actual impact of tax cuts will not be very high.

In other words, we’re back to the old problem of economic management under the Modi government. As always, thanks to a pliant media, this administration has been good at getting positive headlines and fending off pressure even if underlying conditions don’t merit the coverage. But with the slowdown continuing to get worse despite the festive season, headline management is not going to be enough to turn things around. Does the government have the willingness, talent and capability to actually address the problem at hand?