The International Monetary Fund said on Friday that the Indian government’s decision to cut corporate taxes from 35% to 22% will have a positive impact on investment, PTI reported. Last month, Finance Minister Nirmala Sitharaman had announced the tax cuts for domestic companies and new manufacturing firms in a fresh bid to boost economic growth.
However, the IMF said India should continue fiscal consolidation and secure long-term stability of fiscal conditions. “We believe India still has limited fiscal space so they have to be careful,” IMF Asia and Pacific Department Director Changyong Rhee told reporters at a press conference in Washington DC. “We support their corporate income tax cut because it has a positive impact on investment.”
Changyong said the Indian economy is expected to grow at 6.1% this fiscal, and improve to 7% in the 2020-’21 financial year. The global body had earlier this week lowered India’s growth rate projection to 6.1% for the 2019-’20 financial year.
IMF Asia and Pacific Deputy Director Anne-Marie Gulde-Wolf said India should address problems in the non-banking financial sector. “While there have been improvements that have been put in motion, including efforts to recapitalise the state banks, the issue of non-bank financial institution remains partly unresolved and regulatory equity is one of the issues that needs to be achieved,” she said.
Gulde-Wolf also said that India has a high level of debt and fiscal consolidation must be a priority. “However, implementing fiscal consolidation in the context of a federal system is much more complicated,” she said. “The level of fiscal structural issues and challenges are different in different states.”
The IMF had on Thursday said India has worked on the fundamental aspects of its economy but there were problems, such as long-term drivers of growth, that need to be focused on. The global organisation said India would have to focus on structural reforms, as well as include more women in its workforce.
Sitharaman in August announced that 10 public sector banks would be merged into four entities. The mergers will reduce the number of state-owned banks from 27 in 2017 to 12. A week before that, she unveiled a slew of measures to revive economic growth, which fell to a six-year-low of 5% in the April-June quarter.
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