The government had last month announced a ten percentage point cut in corporate taxes, to get Indian levies at par with others, to spur investments.
With an eye on pushing up the sagging personal consumption, which is blamed as one of the key culprits for economic growth sliding to a six-year low, the government is mulling to cut the income tax, according to reports.
“Short-term fillip to consumption spending is likely, while a sustained improvement will require confidence in employment prospects and a sustained push towards raising job creation,” house economists at the bank wrote.
It added that while lower tax outgoes lead to jump in discretionary spend on white goods and travel, but will not lead to a jump in high-value spending in sectors such as real estate, which is also among those hits.
A recent consumer confidence survey undertaken by RBI also leads to a “sombre reading”, it said, pointing out that as the current and future expectations index extended the decline in September.
Meanwhile, the economists also welcomed the divestment measures undertaken by the government in order to make up for the revenue shortfall which may occur because of the corporate tax cuts.
They also said that the actual revenue shortfall can turn out to be lower than the projected Rs 1.45 lakh crore because firms are not embracing the newer system.