Earlier this month, Indian Prime Minister Narendra Modi made a promise. He said that a Diwali gift in the form of a massive tax bonanza was on its way for the common man and the millions of small businesses that power Asia's third largest economy.
Wearing a bright saffron turban and addressing crowds of spectators from the ramparts of Delhi's Red Fort during Independence Day celebrations, Modi also made a rallying cry for self-reliance, urging small shop owners and businesses to put up boards of Swadeshi or Made in India outside their stores.
We should become self-reliant - not out of desperation, but out of pride, he said. Economic selfishness is on the rise globally and we mustn't sit and cry about our difficulties, we must rise above and not allow others to hold us in their clutches.
For many watching, this is clearly aimed at countering US President Donald Trump's brutal 50% tariff rate on India, which kicks in on 27 August. This will disrupt millions of livelihoods across the country's export-driven industries that supply everything from clothes to diamonds and shrimp to American consumers.
Amid the blow, Modi's message to his countrymen has been loud and clear - make in India and spend in India. The former has proved increasingly difficult, with the share of manufacturing as part of India's gross domestic product (GDP) stagnating at 15% levels, despite his government rolling out subsidies and production incentives over the years.
But spurring long-pending tax reforms that immediately put more money into the hands of people could help the government soften some of the blow, experts say. And so, after a $12bn income tax giveaway announced in the budget earlier this year, Modi is now aiming for an overhaul of India's indirect tax architecture – a reduction and simplification of the goods & service tax (GST).
GST, which was introduced eight years ago, replaced a maze of indirect taxes to reduce compliance and the cost of doing business. But experts say it has too many thresholds and exemptions, making the system extremely complicated. They've repeatedly called for it to be revamped.
Now, Modi has precisely promised that, with India's finance ministry putting out a proposal for a simplified two-tier GST system. Combined with the income tax cut in place from April 2025... the GST rate reforms [likely worth US$20bn; £14.7bn] should together provide a meaningful push to consumption, analysts from Jeffries, a US brokerage house, said after the announcement.
Private consumption is a mainstay of India's economy, contributing to nearly 60% of the country's GDP. While rural spending – supported by a bumper harvest – has remained strong, demand for goods and services in cities has continued to slow down due to lower wages and job cuts in major sectors like IT, post the pandemic.
Modi's fiscal stimulus or tax cuts should help ensure a consumption recovery, according to investment banking firm Morgan Stanley. It will push GDP up and drag inflation down. However, significant headwinds from ongoing global geopolitical tensions remain a challenge.
Modi’s recent announcements come at a critical time as they are designed to mitigate the impact of the sharp tariffs enforced by the United States, further complicating the economic landscape for Indian businesses.
Wearing a bright saffron turban and addressing crowds of spectators from the ramparts of Delhi's Red Fort during Independence Day celebrations, Modi also made a rallying cry for self-reliance, urging small shop owners and businesses to put up boards of Swadeshi or Made in India outside their stores.
We should become self-reliant - not out of desperation, but out of pride, he said. Economic selfishness is on the rise globally and we mustn't sit and cry about our difficulties, we must rise above and not allow others to hold us in their clutches.
For many watching, this is clearly aimed at countering US President Donald Trump's brutal 50% tariff rate on India, which kicks in on 27 August. This will disrupt millions of livelihoods across the country's export-driven industries that supply everything from clothes to diamonds and shrimp to American consumers.
Amid the blow, Modi's message to his countrymen has been loud and clear - make in India and spend in India. The former has proved increasingly difficult, with the share of manufacturing as part of India's gross domestic product (GDP) stagnating at 15% levels, despite his government rolling out subsidies and production incentives over the years.
But spurring long-pending tax reforms that immediately put more money into the hands of people could help the government soften some of the blow, experts say. And so, after a $12bn income tax giveaway announced in the budget earlier this year, Modi is now aiming for an overhaul of India's indirect tax architecture – a reduction and simplification of the goods & service tax (GST).
GST, which was introduced eight years ago, replaced a maze of indirect taxes to reduce compliance and the cost of doing business. But experts say it has too many thresholds and exemptions, making the system extremely complicated. They've repeatedly called for it to be revamped.
Now, Modi has precisely promised that, with India's finance ministry putting out a proposal for a simplified two-tier GST system. Combined with the income tax cut in place from April 2025... the GST rate reforms [likely worth US$20bn; £14.7bn] should together provide a meaningful push to consumption, analysts from Jeffries, a US brokerage house, said after the announcement.
Private consumption is a mainstay of India's economy, contributing to nearly 60% of the country's GDP. While rural spending – supported by a bumper harvest – has remained strong, demand for goods and services in cities has continued to slow down due to lower wages and job cuts in major sectors like IT, post the pandemic.
Modi's fiscal stimulus or tax cuts should help ensure a consumption recovery, according to investment banking firm Morgan Stanley. It will push GDP up and drag inflation down. However, significant headwinds from ongoing global geopolitical tensions remain a challenge.
Modi’s recent announcements come at a critical time as they are designed to mitigate the impact of the sharp tariffs enforced by the United States, further complicating the economic landscape for Indian businesses.
