Tax rejig required to reverse slowdown, say experts

By Rohit Vaid

Mumbai, July 30 (IANS) With demand still slackening, global agencies downgrading India's growth and no stimulus from the Budget, the Reserve Bank of India (RBI) is expected to administer another rate cut to boost the economy.

But economists and industry observers said other measures, like lower taxation, were needed to reverse the slowdown.

Lately, stiff tax rates, farm distress, stagnant wages and liquidity constraints have caused a consumption downtrend which has impacted the jobs market.

To shore up growth, the RBI went for a hat-trick of rate cut on June 6, when it lowered key lending rate for commercial banks by 25 basis points (bps) to 5.75 per cent, the lowest in the past nine years.

Besides the slowdown, the situation has become alarming as the government has decided to stick to fiscal deficit target, culling any hope of a stimulus.

"It's expected that the RBI will go in for another round of rate cut in August as both growth and inflation remain subdued. But it has been seen that any monetary policy adjustment will take time to have its effects," said Sunil Sinha, Principal Economist, India Ratings and Research.

"Meanwhile, the government can focus on other areas, such as building a more conducive business environment as well as open up more sectors for competition to shore up growth," Sinha said.

The downtrend has hit sectors, like FMCG, automobile and aviation, the hardest.

"Consumption trends and private investment activity remain subdued," Aditi Nayar, Principal Economist, ICRA. "We anticipate a rate cut in the August 2019 policy review to be followed by an extended pause to await incoming data as well as the transmission of past policy easing."

On the other hand, Rahul Mishra, Principal, A.T. Kearney, says the RBI may want to wait and see if the recent rate cuts have impacted demand or not, before taking any new revision.

"But inconsistent monsoon and floods will increase temporary recessionary pressures as the farm sector is likely to get impacted. An immediate impact should be visible in the upcoming festive season," Mishra said.

On the rate-sensitive auto industry, Grant Thornton India Partner Sridhar V. said, apart from a rate cut, other factors such as monsoon and pricing played critical role in the revival of the sector.

"Liquidity has to ease, monsoon has to be good, pricing has to soften, input cost has to lessen, sentiments have to brighten to see a revival which in the short term looks challenging," Sridhar said.

"Introduction of new products, including an electric car, has certainly attracted attention but would that add to volume growth is a meek point," he said.

The Society of Indian Automobile Manufacturers (SIAM) data showed that passenger car sales in June went down by 24.07 per cent to 139,628 units. In the commercial vehicle segment, sales were down by 12.27 per cent to 70,771 units.

Additionally, overall sales of two-wheelers edged lower by 11.69 per cent to 1,649,477 units.

(Rohit Vaid can be contacted at rohit.v@ians.in)