‘Tax Cuts May Impact Fiscal Deficit, Capex’ and High Borrowings

New Delhi: As the exuberance of stock market and corporates over the tax cuts settles downs, economists and experts on Friday warned of fiscal slippages due to such reduction that may impact fiscal deficit, capital expenditures and cause higher borrowings.

Though the positive effects of the changes are also not ruled out by them economists also said the cuts may not exactly boost consumption, investment demands in a big way.

"We expect today's announcement to provide a big boost to business sentiment in the immediate term, with a modest knock-on impact on consumer demand, particularly for big-ticket items. However, the impact on fresh investment activity may be visible with a lag," Aditi Nayar, Vice President, Principal Economist told IANS.

"Today's announcement would complement the expected further repo rate cut in the October 2019 policy review. We continue to expect a 25 bps rate cut in the upcoming MPC review. In light of the likely back-ended pickup in investment activity and expenditure restraint that would be required, particularly at the state government level, we are not yet revising our FY2020 GDP forecast upward from 6.2 percent," she added.

Former chief government statistician Pronob Sen said, "It is certain concern for a fiscal deficit of 3.3 percent which will be under pressure. The tax cuts push up for more borrowings due to the gap between revenues and expenditure. But if they want to keep the fiscal deficit under control, they have to cut capital expenditure as from the revenue side they can cut very little like cutting PM Kisan Card. But in a slowing economy, if you cut capital expenditure, it does raise an alarm. (IANS)

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