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Inflows of $2 bn per year seen on borrowing tax cut

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India may get $2 billion in additional inflows per year in the medium term after the government last week cut the withholding tax on overseas borrowing by local firms, says Barclays Capital.

The tax cut would reduce the cost of overseas borrowing by 75-100 bps for companies, assuming current borrowing costs of Libor+500 bps, BarCap says.

Inflows would have a significant impact given India faces a negative balance of payments of around $15 billion, the investment bank says.

"However, we think the bigger immediate impact will be on 'expectations' as this will likely (be) seen as indicating the government's resolve to continue to take positive steps to revive investor sentiment," BarCap says in an email to clients.

Copyright @ Thomson Reuters 2012

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