Modi's GST Cuts Aim to Boost Festive Spending in India
India has slashed GST on essentials and consumer goods to stimulate household spending ahead of the festive season and soften the impact of U.S. tariffs.
Relief for Millions: Essentials Duty-Free
From Monday, items such as milk, bread, life and medical insurance, and vital medicines become exempt from GST. Tax on small cars, televisions and air conditioners has been cut from 28% to 18%, while everyday goods like hair oil, soap and shampoo now attract 5% instead of higher rates.
Festive Season Demand Underpins Move
The rate cuts coincide with India’s multi-month festival period, when consumer spending typically surges. With household consumption accounting for over half of GDP, policymakers hope the cuts will partially offset the effect of 50% U.S. tariffs and support domestic demand.
Industry Response and Consumer Uptick
After a $12bn income-tax cut and central bank rate reductions this year, companies including Reliance, HUL and Mahindra & Mahindra plan to pass savings to buyers. Carmaker shares jumped 6–17% following the announcement.
At Hero Motocorp’s Mumbai showroom, dealers anticipate a 30–40% rise in bike sales over the next two months. "Easing cost burdens has increased enquiries and footfall," said Hero’s chief business officer, Ashutosh Varma.
Software developer Vishal Pawar said he plans to upgrade his bike during Dussehra, when festival discounts and tax cuts overlap.
Mixed Reactions in Retail Sector
Consumer-goods makers like Godrej see potential for broader demand if the harvest is strong. However, they face logistical hurdles—reprinting labels and recalibrating production amid uncertain demand.
In Mumbai’s Crawford Market, many small traders remain unaware of the changes or lack capacity to adjust prices quickly. Bridal stores face higher taxes on outfits over $29, potentially dampening wedding-season sales.
Overall Economic Impact and Fiscal Cost
Ratings agency Crisil estimates the cuts will benefit one-third of an average household’s spending basket and boost middle-class purchasing power, depending on pass-through by producers. However, the government projects a $5.4bn revenue loss this year, with experts warning of larger fiscal strain ahead.
India’s GST rate cuts aim to ease consumer costs and invigorate festival-season spending, balancing the impact of high U.S. tariffs with domestic demand support.
This topic was reported by BBC.
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