MUMBAI: Indian government bonds fell on Monday as wary traders priced in a potential fiscal strain from Prime Minister Narendra Modi’s proposed deepest tax cuts in eight years.
The benchmark 10-year bond yield was at 6.4559% as of 11:00 a.m. IST.
It ended at 6.4003% on Thursday.
Bond yields move inversely to prices.
Modi’s government on Friday announced sweeping changes to the complex goods and services tax regime, which will make daily essentials and electronics cheaper from October.
The federal government will propose a two-rate structure of 5% and 18%, doing away with the 12% and 28% tax that was imposed on some items, a government official said on Friday.
However, the plan comes with costs, given that the GST is a major revenue generator.
Santanu Sengupta, chief India economist at Goldman Sachs, said that early data for the fiscal year show that income tax receipts are down about 0.5% year-over-year for the fiscal year until June 2025.
If the changes are introduced, the government may have to curb spending to stay on track with its 4.4% of GDP fiscal deficit target, Sengupta added.
Meanwhile, a planned visit by US trade negotiators to New Delhi from August 25-29 has been called off, delaying talks on a proposed trade agreement and dashing hopes of relief from additional US tariffs on Indian goods from August 27.
“We’re cautiously watching any developments on trade globally to see how Trump’s tariffs play out for India,” a trader at a private bank said.