Pay-offs from tax cuts aren’t visible immediately: Kotak
NEWDELHI: A decrease in borrowing rates and some relief in income tax are key policy interventions required to revive consumer sentiment and boost the economy, Shanti Ekambaram, president of consumer banking at Kotak Mahindra Bank, said.
Ekambaram welcomed the government’s decision to cut corporate tax, but said the pay-offs from the move was not immediately visible. “The last two quarters have been particularly tough for the industry because of subdued demand and there is a need to reverse consumer sentiment,” she said.
Finance minister Nirmala Sitharaman on September 20 gave a ₹1.45 lakh crore stimulus package to India Inc by reducing corporate tax rate for domestic manufacturing companies from 30% to 22% and for new manufacturing companies from 25% to 15%. Ekambaram said the stimulus is a long-term measure, but to immediately boost demand, consumers would require money in their hands. “A cut in the personal income tax rate would have an immediate impact. RBI (Reserve Bank of India) may further cut the repo rate later this week, which will reduce the cost of borrowing, thereby encouraging consumers to spend,” she said. Repo rate is the rate at which the central bank lends money to commercial banks.
“The rate cut (by RBI) may not be more than 25 basis point despite low inflation. High oil prices could be a deterrent, which is because of geopolitical tension after attack on the Saudi Arabian oil installations. The other concern could be the recent stimulus (₹1.45 lakh crore corporate tax rate cut) that could stretch the fiscal deficit,” she added.
Ekambaram expects producers to offer discounts and banks to give attractive lending rates in the festive months starting from October to spur demand. “Like public sector banks, Kotak Mahindra Bank will also launch its outreach programme from Wednesday,” she said.
“There is sufficient liquidity in the system, the need of the hour is to reach out to consumers across the length and breadth of our country with easier access to credit to stimulate demand.”