McKinsey's Gautam Kumra applauds new corporate tax cuts

30 October 2019 3 min. read
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In an interview with CNBC TV18, McKinsey & Company’s India Managing Director Gautam Kumra is the latest in a string of advisory executives to praise the tax cuts recently rolled out by the Indian government, advocating them as a factor that will drive the Indian economy closer to the much coveted $5 trillion mark.

The cuts were announced late in September, and are aimed at improving conditions in the domestic business environment. Much has been made of India’s economic progress, but experts have long expressed the need for the country to develop its manufacturing capabilities, which currently fall short of global standards.

Some of the cuts are aimed specifically at creating an environment for growth in India’s manufacturing sector. Overall, the corporate tax rate was slashed from 30% to 22% for most sectors in the economy. For the manufacturing sector, the new corporate tax rate is as low as 15%.

Representatives from major advisory firms – including the Big Four – have rushed to commend the government on its new initiative. Kumra is the latest to applaud the move, stating that it is an effective way of boosting progress towards a number of government targets.

Gautam Kumra, Managing Director, McKinsey & Company India

These include the aim to reach the $5 trillion mark, as well as the objective of becoming the second largest economy in the world by 2030. Manufacturing capacity is crucial for these objectives, and Kumra believes that the existing conditions in India’s economy will give such a move tremendous value.

Specifically, he advocates the development of manufacturing capacity in the electronics domain, which in itself could add half a trillion to India’s economy over the next decade or so. This will be helped by the substantial workforce that India has, which is increasingly well versed in the technological domain.

Commenting on manufacturing’s crucial role, McKinsey's India Managing Director said, “If you think about productivity, it is not possible for our economy to deliver 7.5 per cent productivity gain unless we actually shift manufacturing by at least 5 percentage points from 17 to 22.”

On India's talent base, he added, “The blessing we have is, we have a large workforce and it is going to only increase. Unlike China, we are going to continue to see the increase in the workforce coming into the working population. Our sense is that if you want to keep the unemployment rate under 3 percent, we need to create about 120 million jobs over the next decade. So, you are talking about 12 million jobs a year and we would need to move about 40-50 million people from agriculture into higher productivity jobs. So, net creation of about 80-90 million jobs.”