India's decision to reduce corporate income tax to help revive investment: IMF

22 Oct 2019 Evaluate

Supporting India's recent decision to reduce corporate income tax, the International Monetary Fund (IMF) said that it has a positive impact on investment. Though, agency also said India should address continued fiscal consolidation and secure long-term stability of the fiscal conditions. IMF’s Director, Asia and Pacific Department, Changyong Rhee said ‘we believe India still has limited fiscal space so they have to be careful. We support their corporate income tax cut because it has a positive impact on investment.’ He said the economy is expected to grow at 6.1% this fiscal year, picking up to 7.0% in 2020, following a marked slowdown in the last two quarters in India. He added that the monetary policy stimulus and the announced corporate income tax cut are expected to help revive investment.

IMF’s Deputy Director, Asia and Pacific Department, Anne-Marie Gulde-Wolf said India should address the non-bank financial sector issues. She said ‘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 added that government is aware of it. She also said ‘we also had a FSAP. So there are issues working at that and this is something that is why not yet fully achieved, but is entrained. While there are problems at this stage, increased attention to lending practices of non-bank financial institutions continue to be very important.’

She further said India overall has a fairly high level of debt and fiscal consolidation needs to be a priority. However, implementing fiscal consolidation in the context of a federal system is much more complicated. The level of fiscal structural issues and challenges are different in different states. So one of the ways in which the IMF is engaged in this question is it has a regional training institute that has started working with the individual states on strengthening fiscal management at the state level. In the context of surveillance engagement with India, she said, the IMF is increasingly placing emphasis on the need to better coordinate the fiscal state level activities and fiscal activities. But, she said it is a concern that the authorities are taking serious and are working at.

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