The implementation of the Goods And Services Tax (GST) is likely to improve GDP by at least 1 per cent in the coming years, on a very conservative basis.
For the first time it looks like we will get the biggest tax reform since independence passed in the Rajya Sabha, making it a law. This itself should have propped up the Indian stock markets, since it is expected to improve GDP and hence corporate profitability.
Nobody knows if it would really boost GDP
There have been instances in the past when the implementation of GST has resulted in a slowdown. In Australia after the GST was implemented in 2000, the economy contracted in 2001, for the first time in 10 years.
Some concerns remain that if the services costs rise due to GST, there would be lower consumption, which could affect sales. Nobody is sure what is in store at the moment, as there is no broad agreement.
Could be inflationary
Some analysts feel that the Goods and Services Tax (GST) could be inflationary. This is certainly not good news for the Indian economy, as it could lead to a hike in interest rates. In fact, most analysts anticipate that there could be inflationary tendency a year after the GST is implemented.
GST Bill discounted on fears of interest rate hikes
All the good work done in meeting common ground and getting it passed in the Rajya Sabha has been overshadowed by the probable hike in interest rates in the US.
Investors are selling stocks in the fear that there would be the first interest rate hike in the US for the first time since June 2006. Investors seem to have ignored the good that could come from the GST Bill.