InvestorQ : How much is the cost of all these tax sops that the government is giving and how will it impact the fiscal deficit?
shrinidhi Rajan made post

How much is the cost of all these tax sops that the government is giving and how will it impact the fiscal deficit?

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rhea Babu answered.
2 years ago
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Any tax cut is revenue foregone and that has a fiscal cost. How will the government make up for its revenue shortfall and is it really a serious issue. As the finance minister admitted, these tax breaks will entail a steep bill of Rs.145,000 crore. This is the foregone revenue assuming that all domestic companies convert to the 22% formula, but that is unlikely. The immediate impact on the fiscal deficit will take it higher from 3.3% to 3.97%.

The spurt in fiscal deficit is nearly 70 bps and is a cause for worry as it will impact the rupee and the sovereign ratings too. S&P has even warned this could be credit-negative for the sovereign ratings of Indian economy. In terms of fiscal deficit, there is certainly a cost!

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