‘No plans to revise fiscal deficit target now’: Sitharaman
Though equity markets welcomed the move, bond yields spiked to a near three-month high on speculation the government may have to borrow more to meet its spending needs.Updated: Sep 22, 2019 21:43 IST
Finance Minister Nirmala Sitharaman on Sunday said India had no plans to revise the fiscal deficit target for the current fiscal and a decision would be taken before the annual Budget.
According to financial experts, India’s fiscal deficit will widen as a result of the corporate tax reduction done by the government recently. Asked if the government will consider revising the fiscal deficit target, the finance minister said these are “decisions taken near the Budget”.
In the biggest reduction in 28 years, the government on Friday slashed corporate tax by almost 10 percentage points as it looked to pull the economy out of a six-year low growth and a 45-year high unemployment rate by reviving private investments with a Rs 1.45-lakh crore tax break. On raising the borrowing target for the second half of the current fiscal, the finance minister said, it will be decided in the next few days.
Base corporate tax for existing companies was reduced to 22 per cent from the current 30 per cent; and for new manufacturing firms, incorporated after October 1, 2019 and starting operations before March 31, 2023, to 15 per cent from the current 25 per cent.
“Not touching any of the given targets now. When the meeting for revised estimates takes place, we will look at it,” Sitharaman said.
According to global rating agency Moody’s, the reduction in corporate income tax revenue – even when balanced against the windfall from the recent transfer of central bank surplus reserves, equivalent to around 0.3 per cent of GDP in the current fiscal year – further narrows fiscal room for manoeuvre.
However, it described the rate reduction as credit positive for companies because it will enable them to generate higher post-tax incomes.