Business Today
Loading...

Cut taxes, not rates to boost consumption: SBI research

SBI economists doubted the efficacy of rate cuts in invigorating demand and believe that a better tool can be reducing indirect taxes to lift consumer sentiment.

twitter-logo PTI        Last Updated: March 11, 2020  | 21:25 IST
Cut taxes, not rates to boost consumption: SBI research
State Bank of India

Amidst calls for the Reserve Bank to cut policy rates to boost growth in the wake of the coronavirus outbreak, SBI economists doubted the efficacy of rate cuts in invigorating demand, saying a better tool can be reducing indirect taxes which can automatically lift consumer sentiment.

"Though the RBI is likely to bite the bullet to cut the rates to stimulate demand at next policy review, it is unlikely to result in any material impact on invigorating demand... but a combination of a larger rate cut and/or indirect tax rate cut can be better policy options," SBI Research said in a note on Wednesday.

Their view was based on the analysis of credit data of top six banks, constituting three public sector banks and three private sector banks which constitute 52 per cent of total bank credit as of March 2019.

Both private and public sector banks are seeing robust growth in retail segment at 15.7 per cent and 12.8 per cent, respectively.

In case of top eight state-run banks, corporate credit declined by Rs 81,535 crore between December 2018 and December 2019, while during the same period the top three private banks' corporate pie grew by Rs 1.04 lakh crore.

It said a rate cut is unlikely to work in isolation as bank transmission of RBI's rate cut has been slow.

Also read: Cabinet clears merger of 10 PSBs into 4 banks effective April 1

Also read: LIC unlikely to invest in Yes Bank; here's why

Youtube
  • Print

  • COMMENT
BT-Story-Page-B.gif
A    A   A
close