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Economy

Seeking an economic jolt, India slashes corporate tax to 25%

New Delhi hopes to escape sub-6% growth rates

The Indian government has been unveiling new economic stimulus measures on an almost weekly basis.   © Reuters

NEW DELHI -- India will lower its effective corporate tax rate to roughly 25% under measures that forgo more than $20 billion in revenue to stoke investment and economic growth.

The reduction, announced Friday by Finance Minister Nirmala Sitharaman, represents a 5-point cut and applies retroactively from this past April.

Companies incorporated on or after Oct. 1 that make fresh investments in manufacturing will be able to pay an even lower rate of about 17%. The idea is to breathe new life into the faltering "Make in India" initiative.

India's real gross domestic product grew 5% for the April-June period, marking a second straight quarter under 6%. The government has been announcing stimulus measures almost weekly since late August in hopes of bolstering the figure.

Others include tax relief for foreign investors, preferential treatment for auto-related companies, and a merger proposal for state-run banks. While these measures were considered too limited, the tax cut has been well received and has led to a surge in stock prices. The BSE Sensex stock index jumped 5.3% -- its biggest percentage gain in more than a decade.

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