NEW DELHI — Prime Minister Narendra Modi has unveiled India’s most ambitious tax cut in eight years, a sweeping overhaul of the Goods and Services Tax (GST) regime that slashes levies on daily essentials and electronics in a move designed to win consumer confidence and counter mounting trade tensions with Washington.
The announcement, made on August 16, marks the biggest restructuring of GST since its rollout in 2017. Beginning October, items such as packaged foods, smartphones, and household electronics will get cheaper as the government abolishes the top 28 per cent slab and moves most goods from the complex 12 per cent bracket to just 5 per cent. Companies like Nestle, Samsung, and LG stand to benefit directly from the tax relief, as do millions of households facing rising costs.
The timing of the reforms is notable. Just a day earlier, in his Independence Day address, Mr. Modi urged citizens to prefer domestically produced goods, a clear response to U.S. President Donald Trump’s decision to impose steep 50 per cent tariffs on Indian imports effective August 27. Political observers say this combination of tax cuts and nationalist messaging could bolster Modi’s standing at a critical moment, both internationally and at home.
Still, the move carries a heavy fiscal price tag. GST remains one of India’s largest sources of public revenue, contributing nearly US$250 billion in the last fiscal year. By slashing rates, the federal and state governments risk losing up to US$20 billion annually, according to IDFC First Bank. Analysts, however, believe the economic lift will outweigh the risks in the short term, estimating an additional 0.6 percentage point boost to GDP over the next year.
“This reduction touches every Indian household, unlike income tax cuts which affect only a small percentage of the population,” said Rasheed Kidwai of the Observer Research Foundation. “It is both politically shrewd and economically stimulative, especially with the Bihar elections coming up.”
Stock markets, which have seen volatility in recent months, are also expected to benefit as retail investor sentiment improves. Political experts note that equity markets are increasingly seen as a proxy for economic confidence among India’s expanding middle class.
India’s GST journey has been turbulent from the start. Introduced with fanfare in 2017 as the biggest tax reform since Independence, the system aimed to unify the national market but soon drew criticism for its convoluted four-tier structure. In 2024, controversy flared when caramel popcorn was taxed at 18 per cent while salted popcorn remained in the 5 per cent bracket, an example mocked as emblematic of GST’s opacity.
By collapsing the 28 per cent band altogether and rolling most 12 per cent goods into the lowest category, Modi’s government hopes to eliminate such inconsistencies and provide long-term clarity for both businesses and consumers.
Whether the plan strengthens India’s economy or deepens its fiscal woes, it has already cemented Modi’s reputation as a risk-taker willing to gamble big on reform and one determined to stand firm in the escalating tariffs standoff with Washington.