The net impact on fiscal deficit will amount to Rs 82,000 crore or 0.40 per cent of GDP
"The government has estimated Rs 1,45,000 crore foregone owing to the current measure announced. If we take into account the current tax shortfall, decline in nominal GDP growth, expenditure rationalisation initiatives and RBI surplus the net impact on fiscal deficit will amount to Rs 82,000 crore or 0.40 per cent of GDP. We believe fiscal deficit for FY20 will come to 3.75 per cent of GDP,” stated the SBI’s research report Ecowrap.
As Finance Minister Nirmala Sitharaman on Friday announced a raft of measures including corporate tax rate cut from base 30 per cent to 22 per cent. A slew of measures were announced with the intent to tackle slowdown and boost consumption in the economy.
Suggesting what the government should do further, the report said, “The government should minimise off-balance sheet borrowing, the government should now issue sovereign bond issuance and raise around Rs 70,000 crore, and the government should go for big bang disinvestment selling some public sector unit to foreign entity.”
Throwing light on the impact of this decision on fiscal deficit, the research report added, “The total revenue foregone is Rs 1,45,000 crore and total tax revenue shortfall is estimated at Rs 90,000 crore. Hence total revenue shortfall is around Rs 2,35,000 crore.”
Somyakanti Ghosh, Group Chief Economic Advisor, SBI, said, “In 2017, US cut corporate tax as key step towards generating GDP growth of at least 3 per cent. Corporate tax rates were slashed from 35 per cent to 21 per cent, reduced the number of brackets, and lowered rates for many individual players. Council of Economic advisors had estimated that cutting corporate tax would raise annual household income by $4,000 to $9,000, corresponding to an increase in wages ranging from 6 to 14 per cent.”
The report also suggested what are the various other reforms that the government should undertake in the future. Land Reforms and labour reforms are the two set of reforms on which the SBI’s research report Ecowarp emphasises on.