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Lower corporate tax in itself not enough to trigger new capex cycle, says Nomura's Sonal Varma

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Sonal Varma, MD & chief India economist at Nomura, spoke to CNBC-TV18 about whether the corporate tax cut will aid in the economic growth recovery. 

Sonal Varma, MD & chief India economist at Nomura, spoke to CNBC-TV18 about whether the corporate tax cut will aid in the economic growth recovery.
Varma said as of now the house would not be changing their GDP growth estimates, which stands at 6 percent for FY20. “The second quarter high-frequency numbers were slower than expected and so the downside risk that was opening up to their 6 percent growth number gets neutralised because of the corporate tax cut announcements,” she added.
“While the lower corporate tax is a positive for corporate profits, we don’t think this in itself is enough to either trigger a new capex cycle or lead to companies reducing prices then, therefore, triggering consumption recoveries. So, the growth multiplier from here should be limited. So retaining the 6 percent projection,” she said.
According to her, the tax cut move is important from a medium-term perspective. “If one were to look at supply-chain disruptions that are going on, we are seeing evidence of production relocation out of China,” said Varma, adding that as of now the bulk of the relocation is happening in Vietnam, Taiwan, Thailand and very few companies are relocating to India.
"The corporate tax rate cut is an important signal for companies to come and do business in India. Given the size of India’s consumer market, the more consumer-oriented companies like electronics are relocating. However, the decision to relocate is not based only on corporate tax rates, it is the overall ecosystem under the broad umbrella of ease of doing business – a lot comes under this like infrastructure, logistics, port chain, land-labour laws etc along with taxes. “We need to continue this momentum, basically tick all the boxes in ‘ease of doing business’ and we need to do it quickly,” she said.

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CompanyPriceChange%Gain
Adani Ports694.35 47.45
Bajaj Auto4,167.10 113.20
HUL2,482.90 65.20
Bharti Airtel538.75 10.10
Grasim1,480.75 22.55
CompanyPriceChange%Gain
HUL2,480.75 63.85
Bajaj Auto4,164.95 105.95
Bharti Airtel538.90 10.20
Bajaj Finserv11,998.00 179.95
IndusInd Bank994.90 10.65

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