Why PM Modi's new GST structure is spooking bond markets
India's 10-year government bond yield nudged above 6.5% on Thursday after PM Modi outlined a new, simpler GST structure in his Independence Day speech.
The move has investors on edge, signaling worries about government finances and making it pricier for the country to borrow money.
Rising yields signal increased borrowing costs and inflation expectations
When bond yields rise past the RBI's repo rate (currently 5.50%), it usually means borrowing costs are going up and people expect inflation to stick around.
The new GST aims to make taxes easier—just two rates now, 5% and 18%—but states could lose revenue in the short run, which might push up deficits and government borrowing.
Economists warn of potential revenue dip
Economists say India could see a revenue dip of about 0.4% of GDP each year from these changes, raising the Centre's fiscal deficit by around 0.2% in FY26.
The government hopes higher dividends and selling stakes in public companies will help cushion things for now, while everyone keeps an eye on a major ₹36,000 crore bond auction set for August 22.
Over time, officials hope a wider tax base will boost growth and bring in more revenue—but there could be some bumps along the way.