Tax, policy rate cuts will spur recovery in 2020: Report

New Delhi: Lower lending rates following a series of policy rate cuts by the Reserve Bank of India and a sharp cut in the corporate tax rates will spur a recovery in India next year, a report said on Monday.

“The turnaround is likely to show up beginning in the October-December quarter, though largely because of a low base in the year-earlier period. A genuine recovery should start in 2020,” Bloomberg global outlook report said on Monday.

The report also said that the gross domestic product growth is expected to rise sharply in fiscal 2021 ending in March, to 7.1 percent, from an estimated 5.7 percent in fiscal 2020.

However, the growth may remain flat at 5 percent in the second quarter of fiscal 2020 ending in September.

The report further said that “by next year, rural incomes should rise” and “good rainfall and government income support is expected to boost farmers’ income and drive rural consumption”.

Several other factors like the government’s decision to infuse capital into public-sector banks and the central bank’s measures to revive non-deposit-taking financial companies should help strengthen India’s financial system, the report said.

The RBI’s transfer of surplus capital reserves to the government also creates more leeway to increase fiscal spending, it added.

The government lowered the corporate tax rate in September for existing companies to 22 percent, from 30 percent, and for new manufacturing companies to 15 percent from 25 percent.

Besides, the report said: “We expect average inflation to rise to 4.3 percent in the fiscal third quarter of 2020, from 3.5 percent in the second quarter. Beyond that, inflation should drop to an average of 3.8 percent in the fiscal fourth quarter of 2020 and 3.5 percent in the first quarter of 2021.”


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