BENGALURU- Recent stimulus measures announced by the Indian government will be insufficient to boost economic growth significantly, said a majority of economists in a Reuters poll who predicted two more interest rate cuts this year, in October and December.
To revive the ailing economy, the government in September announced a steep cut in the corporate tax rate – to 22 percent from 30 percent – triggering the biggest intraday gain in Indian stocks in more than a decade.
That along with other measures, including a rollback of a higher surcharge on foreign portfolio investment – introduced in the budget in July – led international investors to become net buyers of Indian assets in September.
But nearly 60 percent of around 50 economists who answered an additional question said those stimulus measures were unlikely to have a notable impact on the economy.
“While the cut in corporate taxes is sharp, its actual impact on growth is uncertain. Given that the current problem is of weak demand, a demand augmenting measure would have been more productive,” said Rini Sen, India economist at ANZ.
Although the economy is expected to have recovered last quarter from the sharp slowdown in the three months prior, economists downgraded their growth outlook for this fiscal year and next from three months ago.
The Sept. 24-30 poll of over 50 economists predicted gross domestic product growth to average 6.1 percent this fiscal year, the lowest since polling began for the period in April last year.
If realised, that would mark the slowest pace of growth in seven years.
The economy was then expected to expand 6.8 percent next fiscal year, a downgrade from 7.2 percent predicted in the July poll.
That weak outlook was driven by lack of clarity on when and how the US-China trade war will end, which has already hurt business sentiment, manufacturing activity and the global economy.
But some economists argued recent measures announced by the Indian government, along with monetary policy easing, would likely boost Asia’s third-largest economy.
The Reserve Bank of India has already eased policy by a cumulative 110 basis points this year. – Reuters