New Delhi: India’s gross domestic product (GDP) growth is projected to rise sharply in fiscal 2021 to 7.1 per cent from an estimated 5.7 per cent in fiscal 2020, according to Bloomberg Economics.
On the impact of lowered corporate tax for existing companies to 22 per cent from 30 per cent, and for new manufacturing companies to 15 per cent from 25 per cent, Bloomberg Economics noted that this can attract FDI at the time of trade wars.
“This is likely to boost private investment and has the potential to attract greater foreign investment over the next few years, just as the US-China trade war is prompting global manufacturers to rethink their supply chains,” it said.
Bloomberg Economics said in a special report on global outlook called “2020 Vision-Forecasts for the Year Ahead” that the sharp rise in GDP would herald a genuine economic recovery in India in 2020 with the revival of consumer and investor sentiment.
According to the report, India’s recovery, which has been a long time coming, finally seems to be around the corner.
By next year, rural incomes should rise, the central bank’s rate cuts are expected to lead to lower lending rates, and post-tax corporate profits are likely to be higher. “Combined, these should revive consumer and investor sentiment,” the report said.
The turnaround is likely to show up beginning in the October-December quarter, though largely because of a low base in the year-earlier period. A genuine recovery should start in 2020, the report noted.
“We expect gross domestic product growth to rise sharply in fiscal 2021 ending March, to 7.1 per cent from an estimated 5.7 per cent in fiscal 2020. On a quarterly basis, we expect growth to remain flat at 5 per cent in the second quarter of fiscal 2021 ending September, recover to 6 per cent in the third quarter, and rise to 6.8 per cent in the fourth quarter ending March 2021,” Bloomberg Economics has projected.
Good rainfall and government income support is expected to boost farmers’ income and drive rural consumption. The Reserve Bank of India’s liquidity support and rate cuts have started to bring down borrowing rates for home loans and personal consumer loans. These should support overall consumption.
Deep cuts in corporate tax rates are also likely to add impetus to the recovery, reviving animal spirits among businesses and shareholders and, over the medium term, attracting more investment, the report said.
According to the report, several other factors also bode well for the outlook. The government’s decision to infuse capital into public sector banks and the central bank’s measures to revive non-deposit-taking financial companies should help strengthen the financial system. The RBI’s transfer of surplus capital reserves to the government also creates more leeway to increase fiscal spending.