Indian market witnessed mixed response from GST clearance

The Indian middle class is very unhappy with Budget 2018 as they feel that the government has abandoned them by not providing any specific exemptions. Photograph:( Reuters )

Reuters Bengaluru, Karnataka, India Aug 04, 2016, 08.02 AM (IST)
Indian bond and share prices rose as investors welcomed the long-awaited passage of the goods and services tax (GST), though gains were tempered by concerns about the amount of work needed to bring the reforms into reality.

The broader NSE Nifty index pared earlier strong gains to rise 0.28 per cent, having risen as much as 0.66 per cent. Meanwhile, the benchmark BSE Sensex 10-year bond yield was down 3 bps at 7.17 per cent.

The GST passage in the Rajya Sabha paves the way for the rollout of India's single biggest tax reform since independence, one that harmonises 11 state and central levies into a national sales tax and cuts business transaction costs.

Its passage marks a victory for Prime Minister Narendra Modi as he seeks to boost growth in Asia's third-largest economy, and is a relief for investors, especially overseas, who'd been growing impatient about the pace of reforms.

But the government and companies from sectors such as automakers and logistics will now need to implement new technology structures in preparation for the new taxes.

Nomura analysts also warned the GST could negatively impact the economy in the short-term as higher taxes hit consumption and push up inflation by 20-70 basis points in the first year of implementation.

"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 said in a research note. 

Shares of automakers rose as the heavily taxed sector is expected to be one of the biggest beneficiaries of a unified and national taxation system. Tata Motors surged 4.3 per cent.

Logistics firms also gained, with Shipping Corp of India up 3.8 per cent and Transport Corp of India up 2 per cent.