The government unexpected move to massively slash corporate taxes by over 10 percentage points will result in savings of over Rs 50,000 crore to India Inc, according to an analysis by economists at State Bank.
The benefit coming in from the Rs 1.45 lakh crore tax giveaways will also help companies to cut prices by up to 5 percent to boost consumer demand, which has been sagging and is one of the prime reasons for the deepening slowdown.
The economy has grown the slowest pace in six years at 5 percent for the June quarter, which has resulted in a rash of measures from the government, including the massive tax cut for corporates which varies from 10 t0 12 percentage points.
“Corporate savings will jumps by Rs 50,000 crore, product price can come down by 2-5 percent, boosting demand,” they said in a note.
With new effective rate of 25.17 percent, tax saving for its sample of 3,446 listed companies could be at least Rs 44,000 crore, which is a substantial boon for the corporates waiting for business revival in stressed environment, it said.
Echoing other analysts who have flagged caution on fiscal slippage, the SBI note said the fiscal deficit will widen to 3.75 percent as against the targeted 3.3 percent. Many others have pegged this at 4.1 percent.
After calculating for the expected tax revenue shortfall, decline in nominal GDP growth, expenditure rationalisation initiatives and RBI surplus, the net impact on the fiscal deficit will be Rs 82,000 crore or 0.4 percent of GDP, it said.
It also recommended the government minimise to the extent possible the off-balance sheet borrowings so that fiscal policy is more credible and acceptable to the market.
The next stage of reforms we expect should now clearly happen for factor markets, land and labour, and rural sector, the report said.Get access to India’s fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code “GETPRO”. Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.