Rating firm S&P Global said on Friday India’s move to cut corporate tax rates was a “credit negative development” despite potentially boosting the broader economy as it will widen its fiscal deficit.
The cuts are likely to “boost sentiment and support the broader economy at a time when momentum is flagging”, said Andrew Wood, director of sovereign and international public finance ratings at S&P Global Ratings.
“Nevertheless, we believe that the cuts will invariably lead to higher central and general government fiscal deficits, absent equivalent revenue generating measures,” Wood told Reuters.
The Indian government slashed corporate taxes on Friday, giving a surprise $20.5 billion break aimed at reviving private investment and lifting growth from a six-year low that has caused job losses and fuelled discontent in the countryside.
The news sent shares sharply higher, but bond yields spiked to a near three-month peak on speculation that the government may have to borrow more to meet its expenditure needs, as the measures will mean a revenue loss of 1.45 trillion rupees for the current year.