Tax, policy rate cuts will spur recovery in 2020: Report

Lower lending rates following a series of policy rate cuts by the Reserve Bank of India and a sharp cut in the corporate tax rates will spur a recovery in India next year, a report said on Monday. "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," Bloomberg global outlook report said on Monday.

The report also said that the gross domestic product growth is expected to rise sharply in fiscal 2021 ending in March, to 7.1 per cent, from an estimated 5.7 per cent in fiscal 2020.

However, the growth may remain flat at 5 per cent in the second quarter of fiscal 2020 ending in September.

The report further said that "by next year, rural incomes should rise" and "good rainfall and government income support is expected to boost farmers` income and drive rural consumption".

Several other factors like 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 India`s financial system, the report said.

The RBI`s transfer of surplus capital reserves to the government also creates more leeway to increase fiscal spending, it added.

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The government lowered the corporate tax rate in September for existing companies to 22 per cent, from 30 per cent, and for new manufacturing companies to 15 per cent from 25 per cent.

Besides, the report said: "We expect average inflation to rise to 4.3 per cent in the fiscal third quarter of 2020, from 3.5 per cent in the second quarter. Beyond that, inflation should drop to an average 3.8 per cent in the fiscal fourth quarter of 2020 and 3.5 per cent in the first quarter of 2021."