'But' is a most unsatisfying word.

Euphoria! The Bombay Stock Exchange (BSE) index the Sensex soared by 2,102.40 points yesterday, adding Rs 2.11 trillion to market capitalisation of listed companies. The market eventually closed at 38,014.62, a gain of 1,921.15 points or 5.32%. What set the Sensex on fire? "Manufacturing companies not availing of tax sops can now opt for a 22% corporate tax rate, while new manufacturing companies that register and start production between 1 October and March 2023 can avail an even lower tax rate of 15%." Corporate tax rate varied from 30% for domestic to 40% for foreign companies with added surcharge and cess that would add anything up to 20% of the tax, so the effective rate of tax will fall from around 35% to around 25%. The Prime Minister Narendra Modi flew off to the US to attend a 'Howdy Modi' event in Texas, organised by Indian expats living in the US, and this announcement and the stock market reaction makes for a nice speech at the event. Amid all the high fives there is a 'but', actually several 'buts'. The cut in taxes will create a shortfall in the budget of Rs 1.45 trillion which has to be filled by increased borrowing. Yields on 10-year benchmark government bonds "which was last traded at 6.64%, shot up over 20 basis points before closing at 6.79%". "The biggest fear among bond dealers is that the government will borrow more to make up for its revenue shortfall and increase supply of bonds." "Economists expect that the fiscal deficit could expand to between 3.8% and 4.1% of the gross domestic product (GDP)." That will put upward pressure on interest rates. Then there is a question of trust. Just a couple of months back there was a massive increase in surcharge on people earning more than Rs 20 million per year which would include almost all foreign expats working in India. Last year, rules for e-commerce companies, such as Amazon and Flipkart, were changed suddenly. This was just a few months after Walmart paid $16 billion to acquire Flipkart and agreed to pay Rs 100 billion in tax on the deal. This is probably a typical Indian phenomenon wherein the buyer pays tax which should be paid by the seller who, after all, is making a profit. Needless to say, both Walmart and Amazon were not best pleased. The reduction in corporate taxes is apparently going to make companies more competitive globally and increase exports to over $1 trillion. How exactly? Corporate taxes are paid on profits which come from sales which come from consumer demand which has slumped, especially in rural areas. Export competitiveness depends on prices of goods and services which are taxed under the Goods and Services Act (GST). Finally, factors of production, such as labor and land, remain as difficult as before. Perhaps, the best reform would be to stop changing rules and setting targets on tax officials which leads to tax terrorism. People can then plan long term.