Initially this year several foreign debt investors headed straight for the exit gate. But now chances are they may not only just take a ‘U’ turn back. But may even buy bonds as the biggest economic reform is underway in the economy with the GST Bill. Such an economic reform has not been made in almost a decade. It is now very close to being the reality.
What to expect from GST?
With the approval and passage of the GST bill, there will not be better conditions for business. Moreover, there is also higher tax revenues. Also with a promising fiscal deficit this year, the borrowing pressure has chances of easing off as per most investors. They believe the developed world central banks will still maintain an aptitude to ease monetary policies which would make the yields of 7 percent along with stable currency generation and healthy and attractive investment proposition.
The last month witnessed benchmark bonds to be dipped by 28 basis points or some 3.75 percent. And last week the bonds closed at 7.17 percent which is a 38 month low. This optimism over the GST bill is best shown with the turnover of INR 1.4 Lakh in government bond trading as of on Thursday. The industry insiders like Managing Director of DBS Bank said that with positive developments within the economy with the GST Bill and the monsoon, the rest of the year is also likely to attract foreign investors, thus, setting up the flames for newer trends in the economy. The lowered bond yields are an example of that which shows that the country is earning credibility from the foreign investors.
Introduction of GST
The past month of July recorded the highest monthly overseas fund influx of INR 6845 crore into Indian bonds, which is the highest since the time in October 2015 which witnessed such a steep influx. As per the stats on an average there are present there are net sellers of INR 4724 crore this year. The government has proposed that they will place the GST Bill in the Rajya Sabha this week. This will give the nation hope that the tax proposal that unifies the whole nation as a single marketplace may transform into a reality after years of constant bickering.
Other banking professionals of international banks also suggested optimism ahead of the GST bill as they believe that will help to accelerate investments in a cyclic manner, over an extended period of time which will add to growth for the economy. This will also further push away the cause for reduction of structural fiscal deficit thus, helping the government finances and with lower borrowings will have a positive impact throughout.
As per the Budget 2016-17, the government had planned to affix the fiscal deficit at 3.5 percent of the GDP. And its total market borrowing at INR 6 Lakh crore. The government had planned to fuel this by selling of bonds through the RBI. And both these plans stand to improve in the upcoming years.
For corporate bonds, the government has used up 66 percent of the total limit of INR 1.62 Lakh crore. The FPIs have invested almost 86 percent of their total limit into government debt securities of INR 1.83 Lakh crore.
Moreover, the yields in other developed nations like Germany and Japan remain lowly. This boost Indian markets pose to be attractive to lure in foreign investors. So, even while the government pushes to increase the aggregate demand, the nation expects that international central banks will still maintain its low-interest rates. And QE’s thus, keeping their monetary policies at ease.