Modi's tax overhaul sends India's bond yields to 4-month high
India's 10-year government bond yield rose to 6.52%, the highest since April 9, right after PM Modi's August 15 tax overhaul announcement.
The new rules, kicking in this October, will cut indirect taxes on basics and electronics—good for shoppers, but likely to shrink government revenue.
Investors are worried about the government's ability to manage finances
When the government earns less from taxes, it may need to borrow more money.
That makes investors nervous, so demand for bonds drops and yields go up—which means higher borrowing costs for everyone.
Officials say they'll balance things out with other taxes and fees to keep the budget on track, but markets are still a bit uneasy.
Swap rates rise as traders prepare for potential financial turbulence
Swap rates—a kind of market signal about future interest rates—also ticked up as traders brace for more ups and downs ahead.
All this suggests people expect some financial turbulence while the government figures out how to pay its bills without those lost tax earnings.