By Bharath Rajeswaran
(Reuters) -Indian shares jumped more than 1% on Monday after the government proposed sweeping changes to the goods and services tax (GST) regime, which will make daily essentials and electronics cheaper from October.
New Delhi 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, after Prime Minister Narendra Modi announced the reforms.
The world’s fifth largest economy is expected to grow at 6.5% in the current year, according to the central bank’s estimates, but economists have pointed to sluggish urban consumption as wage growth remains modest.
The GST cuts, along with income tax reductions announced in February, could mean policy stimulus of 0.7-0.8% of GDP to households, Citi Research said in a note on Monday.
The lower rates should boost overall demand and fiscal year 2027 earnings outlook, it added.
India’s Nifty 50 rose 1.36% to 24,963.65 points and the BSE Sensex gained 1.23% to 81,589, as of 11:27 a.m. IST.
The Nifty was set for its best day in three months, while the Sensex was on track for its best session in two months.
However, Indian indexes have underperformed global markets this year, with the Nifty gaining 5.5%, compared with gains of 17.4% in Asia and 18.3% in emerging markets.
Twelve of the 16 major domestic sectors advanced on Monday, with auto and consumer stocks jumping 4.5% and 2%, respectively.
As part of the reforms, India has proposed lowering GST on small cars to 18% from 28%, a government source said.
Shares of India’s top carmaker Maruti Suzuki gained 8.2%, while those of Hero MotoCorp, the country’s biggest two-wheeler maker, surged 6.5%.
Consumer staples, automobiles, cement, hotels, retail and consumer durables are likely to be the key beneficiaries of the tax rationalisation, analysts at Motilal Oswal said.
The benchmarks were also boosted by lower oil prices after the U.S. refrained from imposing new measures to curb Russian oil exports, following the Trump-Putin meeting on Friday. [O/R]
($1 = 87.4970 Indian rupees)
(Reporting by Bharath Rajeswaran in Bengaluru; Editing by Sumana Nandy, Sonia Cheema and Mrigank Dhaniwala)
