The big story<\/p>\n
At a time when U.S. trade tariffs on India have been making headlines, Prime Minister Narendra Modi’s tax relief plans have stolen some of the media limelight.<\/p>\n
Modi last week announced a major goods and services tax revamp by October \u2014 a move seen as a significant step toward boosting consumer spending as global economic pressures pile on.\u00a0The final blueprint is likely to be discussed at the next GST Council meeting expected in September.<\/p>\n
GST, which currently has four slabs \u2014 5%, 12%, 18%, 28% \u2014 is expected to be simplified<\/a> into a two-rate structure \u2014 5% and 18% \u2014 according to Reuters.<\/p>\n This push to simplify the tax regime comes as India braces for an additional 25% U.S. tariffs to kick in later this month, taking the total duties on Indian exports to 50%. The simplified code would mean reduced taxes for Indians, likely boosting domestic consumption \u2014 and, to some extent, absorbing the hit from Trump tariffs, expert say.<\/p>\n India’s economy is heavily reliant on consumption.\u00a0Private consumption accounted for 61.4% of India’s nominal GDP in financial year ending March 2025, according to the finance ministry’s monthly report<\/a> published in June. It was the highest in two decades.<\/p>\n Anubhuti Sahay, head of India economic research at Standard Chartered Bank, estimates the GST reform could boost India’s economy by 0.35 percentage point to 0.45 percentage point in fiscal year ending March 2027.<\/p>\n “This was much needed,” Saurabh Mukherjea, founder of Marcellus Investment Managers, told CNBC’s\u00a0“Inside India<\/a>.” “Net-net, I think it’s a $10 billion boost to consumption \u2026 but Donald Trump’s tariffs do twice as much damage to India. A sweet spot will be if tariffs are rolled back, and GST reforms are implemented by October-November.”<\/p>\n Even before tariff concerns surfaced, the Indian government had been trying to stimulate demand. In its annual budget presented in February, the country exempted annual incomes up to 1.2 million Indian rupees ($13,800) from tax. And, on the policy front, the Reserve Bank of India has slashed rates by 100 basis points so far this year, reducing borrowing costs.\u00a0<\/p>\n The urgency for reforms has only intensified amid possible tariff-related challenges.\u00a0<\/p>\n “With many export sectors potentially shut out of the U.S. \u2014 India’s largest market \u2014 the government has no choice but to accelerate domestic growth,” said Shumita Deveshwar, senior director of India research at TS Lombard.<\/p>\n Mukherjea, however, added that deeper reforms must follow and hopes the government does not stop at just GST. \u00a0“Once the government sees proof that this GST cut, the indirect tax stimulus is working, there will hopefully be more [reforms].\u00a0India desperately needs a consumption and jobs revival. One won’t happen without the other. The government and central bank must work in tandem.”<\/p>\n The urgency is underscored by high youth unemployment.\u00a0Government data<\/a> this week showed a 19% jobless rate among urban youth, up from 18.8% in July.<\/p>\n Prime Minister Modi also announced a 1 trillion rupee youth employment scheme during his Independence Day address on Aug. 15, with the aim of creating 35 million jobs.<\/p>\n Sectoral boost<\/p>\n Like almost everyone, I too spend a substantial amount of time on social media.<\/p>\n I recently saw a quick-commerce delivery driver post a “fit check” video showcasing his grooming routine \u2014 face wash, moisturizer, hand cream, lip gloss \u2014 proof that spending on something like self-care is cutting across income lines.<\/p>\n India’s 600 million people between the ages of 18 to 35 are shaping consumption trends and Gen-Z consumers appear excited by the planned GST overhaul. Vandit Garg, a Bengaluru-based banker, told me: “I will spend on travel and tech upgrades now that taxes will be lower.” His colleagues, he added, were already planning to switch from motorbikes to compact cars.<\/p>\n According to Deveshwar, consumer discretionary sectors \u2014 particularly those currently under the 28% bracket \u2014 stand to gain the most. “Yes, there’s a short-term fiscal cost, but the long-term benefits in demand revival are substantial.<\/p>\n Inflation has also been cooling off in India, easing to an eight-year low in July, largely due to falling food and vegetable prices. Savings on essential items could spur discretionary spending, with their possible inclusion in the 5% GST slab being an additional boost \u2014 currently, several items of daily use such as toiletries, packaged food and some drugs fall in the higher tax brackets.<\/p>\n While lower grocery bills are helpful, several people I spoke to hope the tax relief extends to more essential services.<\/p>\n “No doubt it’s good if groceries get cheaper, but for me, that’s not enough,” said Ashutosh Agarwal, a software engineer in Noida. “If GST on medical and education expenses is cut, I’d consider upgrading my health insurance or investing more.”<\/p>\n Currently, health insurance premiums attract 18% GST in India. A panel of state ministers that met on Wednesday to discuss reforms has proposed exempting tax on health and life insurance premiums, according to domestic<\/a> <\/a>media<\/a> reports.<\/p>\n Simplification is needed<\/p>\n Back in 2017, I was in a newsroom on a late-night shift waiting for the GST bill to be cleared in India’s parliament. It was touted as a move toward “One Nation, One Tax” that was set to simplify a variety of state and federal taxes.\u00a0But what followed were multiple, rather confusing, GST tax slabs. Contrast that to Singapore where I am based out of \u2013 a flat 9% tax across all goods and services.<\/p>\n Mohit, a toy store owner from Shamli, a small town in the northern state of Uttar Pradesh has struggled with the variety of GST tax rates rates:\u00a0“A soft toy is taxed at 5%, plastic items at 12% anything fitted with batteries\u00a0at 24%. I spend 10 days a month just doing GST paperwork.” His struggle is emblematic of the problem that the existing tax system poses for ordinary businesses.<\/p>\n “As GST 2.0 will likely be focused on reducing procedural hassles and correcting inverted duty structures, if implemented, it could improve the ease of doing business,” Sahay of Standard Chartered Bank said in a report.<\/p>\n If the proposed GST are passed, implementation could begin as early as October 2025 \u2014 just ahead of India’s festive shopping season.<\/p>\n But politics may complicate the timeline. HSBC’s Pranjul Bhandari estimates the overhaul could cost the exchequer $16 billion, or 0.4%, of India’s GDP. “This could be equally split between the central and state governments. The centre has other revenue sources to count on, but states do not have as many options. They may not agree to the revenue hit,” Bhandari wrote in a report.<\/p>\n Modi promised in his speech earlier this month that newer GST regime will be in place in right when India celebrates Diwali, its festival of lights \u2014 it remains to be seen if the reforms will go through and indeed light up consumers and businesses.<\/p>\n Top TV picks on CNBC James Thom of Aberdeen said he remains bullish on India’s structural outlook, noting the tax reform could revive weakening consumption and cushion the impact of high U.S. tariffs.<\/p>\n Ashutosh Tiwari, managing director and head of institutional equities at Equirus Securities, said he thinks rural demand will be the big market play over the next 6-12 months amid India’s GST overhaul.<\/p>\n IKEA India CEO Patrick Antoni said the company adapts some products for Indian homes, focuses on affordability and is looking to source more materials locally. IKEA also sees large long-term potential in India’s young, fast-growing market.<\/p>\n Need to know<\/p>\n U.S. President Donald Trump’s peculiar geopolitical strategy. India is a close ally of Washington \u2014 yet it is facing 50% tariffs and accusations of profiteering from cheap Russian oil<\/a>. What’s behind Trump’s playbook<\/a>?<\/p>\n A U.S. delegation to India was reportedly called off. The visit by U.S. trade representatives was expected to happen between Aug. 25 and Aug. 29, but will likely be rescheduled<\/a>, according to local broadcaster NDTV Profit.<\/p>\n Apple has reportedly increased iPhone production in India. Even as the South Asian nation faces pressure from the White House over its purchase of Russian oil, Apple is ramping up manufacturing at five of its Indian factories<\/a>, Bloomberg<\/a> reported Tuesday.<\/p>\n OpenAI launched its most affordable plan in India. The subscription, launched Tuesday, costs just 399 rupees<\/a> ($4.57) a month, signaling the artificial intelligence company’s push to grow in its second-largest market<\/a> in terms of users.<\/p>\n \u2013 Yeo Boon Ping<\/p>\n Quote of the week<\/p>\n The Prime Minister’s trip to China could set the stage for a bigger BYD move in India. If BYD enters the market, potentially via a joint venture with a major Indian firm, Indian automakers will face a competitive challenge unlike anything they’ve probably encountered ever in their lives.<\/p>\n \u2014 Saurabh Mukherjea, founder and CEO of Marcellus Investment Managers\u00a0<\/p>\n In the markets<\/p>\n![\"India's](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2025\/08\/1755799450_589_108187029-1755506138552-1755500801-41234557737-hd.jpg\")
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