Indian Markets Embrace GST but Face Challenges Ahead, Reuters Reports

Indian bond and share prices experienced an uptick as investors reacted positively to the long-awaited approval of the goods and services tax (GST). However, gains were mitigated by worries regarding the substantial work required to implement the reforms effectively.

The broader NSE index saw a modest rise of 0.28 percent, having earlier climbed as high as 0.66 percent. At the same time, the yield on the benchmark 10-year bond decreased by 3 basis points to 7.17 percent.

The passage of the GST in the upper house of parliament marks a significant step toward India’s largest tax reform since independence, aiming to unify 11 state and central taxes into a national sales tax and reduce costs associated with business transactions.

This approval represents a triumph for Prime Minister Narendra Modi, who is focused on stimulating growth in Asia’s third-largest economy. It also alleviates concerns among investors, particularly those overseas, who have been increasingly frustrated with the slow pace of reforms.

Despite the positive news, the government and industries such as automotive and logistics will now face the challenge of implementing new technological frameworks in preparation for the new tax structure.

Analysts at Nomura cautioned that the GST might have adverse short-term effects on the economy, potentially impacting consumption and increasing inflation by 20-70 basis points in its first year.

“Contrary to general perceptions, we believe that the short-term impact of the GST could be mixed, but the long-term impact will be clearly positive,” Nomura noted in their research.

Stocks in the automotive sector gained as this heavily taxed industry stands to be one of the main beneficiaries of a streamlined national taxation system, with Tata Motors seeing a notable 4.3 percent increase.

Logistics companies also experienced gains, with Shipping Corp of India rising by 3.8 percent and Transport Corp of India increasing by 2 percent.