Page 27 - Nuvama | IC Report 2023

INDIA: THE 5D ADVANTAGE

In all, with this revamped fiscal machinery, the government is rechanneling enhanced resources
back into productive uses such as public infrastructure, and is able to take care of the poor in a
more targeted manner.
Corporates: Conducive investment climate

For India Inc. as well, there has been significant progress towards enhancing investment climate. In our
view, these can be broadly classified into three buckets. GST favours
consolidation
Improving taxation structure with large production incentives towards larger
corporates, better
One of the key impediments to India’s manufacturing has been firms’ inability to scale up. Firms in economies of
India remain small for long – in large part – due to a complex tax structure and regulatory burden of scale and a more
becoming big. This disincentivises scale and productivity. However, this is now changing. formalised economy
First, with the implementation of GST, the tax arbitrage enjoyed by smaller firms has diminished. This,
by design, favours consolidation towards larger corporates, better economies of scale and a more
formalised economy. And its benefits are already visible in the increased share of the large and listed
manufacturing companies in the overall value added in the manufacturing sector.

Exhibit 5:
32 Market share of
listed companies
on the rise

30

(%) 28

26

24
Jun ‘16 Jun ‘17 Jun ‘18 Jun ‘19 Jun ‘20 Jun ‘21 Jun ‘22
Share of listed companies in manufacturing GDP (India)
Source: CMIE, Nuvama Research

Second, the taxation structure has been simplified. Tax rates have been lowered and filing norms have
been eased. In 2019, the government lowered the tax rates for large and small corporates to 25%, which
is broadly on a par with global peers. This is likely to provide more resources to corporates for capacity
creation. These competitive tax rates are further complemented by fiscal incentives to businesses for
setting up fresh capacity.

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