The Finance Ministry on 4th October 2019 had stated that it has considered the Reserve Bank of India's downward revision of GDP growth rate for the financial towards 6.1% while hailing the 25 bps cuts in repo rates which shall complement the recent measures.
The Government has notified the repo rate reduction from 5.40% towards 5.15% which has been announced by the Monetary Policy Committee (MPC) as well as it held that this shall balance the current measures that were taken by the government in order to accelerate growth.
The government has adopted a slew of measures since August 23 towards pulling the economy out of a 6-year low growth and a 45 year higher unemployment rate through reviving private investments.
Last month, the government had slashed down the corporate tax rate by almost 10 percentage points, a measure which had a tax implication of Rs 1.45 lakh crore.
As a part of the measure, the government had also withdrawn enhanced surcharge on long- as well as short-term capital gains for foreign portfolio investors and domestic portfolio investors by means of revenue implication of Rs 1,400 crore.
The Government has also considered the revised growth projections of the MPC at 6.1% for 2019-20 along with growth projections made through other bodies which includes the IMF, ADB, etc.
A finance ministry had stated in the statement that the government has furthermore considered higher projection of headline inflation beside MPC for 2019-20, which is within the band of 3-4% and well within the "target range"
The retail inflation during August had accelerated to a 10-month high however remained well below the Reserve Bank of India's medium-term target of 4% for a 13th straight month. The Reserve Bank of India (RBI) had recently cut interest rates for a 5th straight meeting this year through an additional 25 basis points, stepping up its efforts to initiate an economy rising at its slowest pace in 6 years. The Reserve Bank of India also slashed down its GDP growth estimated to 6.1%, from an earlier estimate of 6.9%.
The repo rate or the rate at which RBI lends towards the banks was revised to 5.15% from 5.40%. Likewise, the reverse repo rate was adjusted to 4.90%.
Conclusion
In the last 2 months, the government had announced many measures which included steepest cut in corporate tax, rollback of enhanced surcharge on Foreign Portfolio Investors, amongst others in order to initiate growth, which had hit a 6-year low of 5% during the first quarter of the present fiscal.
Also in the past month, the ADB had cut down India's growth rate for the fiscal to 6.5% from 7.2% earlier. IMF also lowered India's growth rate to 7% by 30 bps.
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