Rating firm S&P Global said on Friday government's move to cut corporate tax rates was a "credit negative development" despite potentially boosting the broader economy as it will widen its fiscal deficit.
The cuts are likely to "boost sentiment and support the broader economy at a time when momentum is flagging", said Andrew Wood, director of sovereign and international public finance ratings at S&P Global Ratings.
"Nevertheless, we believe that the cuts will invariably lead to higher central and general government fiscal deficits, absent equivalent revenue generating measures," Andrew Wood told Reuters.
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The government slashed corporate taxes on Friday, giving a surprise $20.5 billion break aimed at reviving private investment and lifting growth from a six-year low that has caused job losses and fuelled discontent in the countryside.
The news sent shares sharply higher, but bond yields spiked to a near three-month peak on speculation that the government may have to borrow more to meet its expenditure needs, as the measures will mean a revenue loss of Rs 1.45 lakh crore for the current year.
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