Corporate tax rate cut is clearly a positive for India which would move the country up the ladder in terms of attractiveness for foreign direct investment, says Ray Farris, Chief Investment Officer, South Asia, of Credit Suisse.
The measure on a one-off basis would boost Indian corporate profits by around 7 percent, he added.
“Indian debt levels are high, they are uncomfortable. The result of the stimulus programme has been that Indian bond yields have gone up a bit but if Indian growth does recover then the country will probably get the inflows of funds to finance that,” he observed.
“I think the key problem in India is this squeeze on credit in the banking system, initially from bad debt problems in state banks and now with the non-banking financial institutions. Corporates right now are just focused on reducing debt and preserving liquidity. So it may take a good two-three quarters of a year before this corporate tax cut begins to affect growth in investment because corporates are still very conservative – sort of liquidity preservation mode,” he added.