Major GST Reforms Expected to Boost Indian Economy
The Indian government is on the cusp of implementing significant Goods and Services Tax (GST) reforms, proposing a simplified two-tier structure of 5% and 18% for most goods, with a 40% rate reserved for luxury and sin items. This move, discussed at a high-level meeting chaired by Prime Minister Modi, aims to simplify the tax system, ease compliance, and reduce the tax burden on citizens, fulfilling a promise made earlier.
Experts believe these "next-generation GST reforms" will be a crucial step towards economic improvement. The proposed changes could particularly benefit sectors like automobiles, with discussions around lowering GST on small cars, and insurance, where premiums might become more affordable.
Indian Markets Surge on Reform Optimism
Optimism surrounding the impending GST simplification has led to a notable surge in Indian equities. On Monday, the S&P BSE Sensex gained 676.09 points to close at 81,273.75, while the NSE Nifty50 added 245.65 points, ending at 24,876.95. The Nifty briefly crossed the 25,000 mark. Sectors like auto and Fast-Moving Consumer Goods (FMCG) led the rally, with Maruti Suzuki India seeing an almost 9% gain due to the likelihood of lower GST on small cars. Foreign portfolio investors (FPIs) also made net purchases of shares worth Rs 550.9 crore.
Unemployment Rate Falls in July
In positive news for the job market, India's unemployment rate decreased to 5.2% in July, down from 5.6% in June. This improvement was largely driven by increased hiring in rural areas ahead of the festive season and heightened activity in the agriculture sector. The rural jobless rate for individuals aged 15 and above fell to 4.4% from 4.9%. However, urban unemployment saw a slight increase to 7.2% in July.
US Tariffs and Sovereign Rating Upgrade: A Mixed Bag
Despite domestic economic strides, India faces external challenges, notably the imposition of additional US tariffs on its goods. The US has levied a 50% tariff on Indian exports, citing India's continued purchase of Russian oil. This move is expected to impact India's economy, with Moody's Analytics projecting a 0.7% reduction in FY 2025 GDP due to these tariffs. The Chief Economic Advisor, Dr. V Anantha Nageswaran, acknowledged potential short-term hardships for exporters in sectors like marine products, textiles, and gems and jewellery.
Conversely, India received a significant boost with S&P Global Ratings upgrading its long-term sovereign credit rating to 'BBB' from 'BBB-', the first such upgrade in 18 years. This upgrade reflects India's strong economic growth, improved monetary policy credibility, and fiscal consolidation efforts. Dr. Nageswaran emphasized that India's economic performance and global ratings speak for themselves, despite external criticism.
Other Notable Business Developments
In other business news, Apple has leased a substantial 2.7 lakh sq ft of office space in Bengaluru for over Rs 1,000 crore, indicating continued investment in India. Muthoottu Mini Financiers reported robust Q1 FY26 results, showing significant growth in revenue, profit, and Assets Under Management (AUM). Additionally, Vikram Solar's Initial Public Offering (IPO) opened for subscription, with the company raising Rs 621 crore from anchor investors.