Jobs Confidence, Not Income Tax Cuts, Will Push Up Consumption: DBS
Amid speculation of an income tax cut in India, economists at Singapore's DBS Group Holdings Ltd. on Tuesday said confidence on the jobs front is necessary to achieve the move's long-term objective of pushing up consumption expenditure.
On Sept. 20, Finance Minister Nirmala Sitharaman announced a corporate tax cut, a move aimed at bringing Indian levies on a par with other Asian nations and spurring private investment in the Indian economy.
And, with an eye on pushing up consumption expenditure, seen as a key reason for India’s economic slowdown, Prime Minister Narendra Modi-led government is said to be mulling a cut in income tax rates.
"Short-term fillip to consumption spending is likely, while a sustained improvement will require confidence in employment prospects and a sustained push towards raising job creation," DBS’ economists said in a note.
While lower tax outgoes lead to a jump in discretionary spending on white goods and travel, it will not lead to a jump in high-value spending in sectors such as real estate, which is also among those hit by the India slowdown.
The economists welcomed the government disinvestment measures to bridge any revenue shortfall arising from the corporate tax cuts. The actual revenue shortfall can turn out to be lower than the projected Rs 1.45 lakh crore because not all firms are not embracing the newer system, they said.