Prime Minister Narendra Modi’s government has announced India’s most sweeping tax cuts since 2017, a move that will reduce prices on daily essentials and electronics but cost the state an estimated $20 billion annually in lost revenue.
The overhaul of the Goods and Services Tax (GST), unveiled Saturday, abolishes the highest 28% tax slab and shifts most items from the 12% bracket into the 5% category. The reforms are expected to boost GDP growth by 0.6 percentage points over the next year, according to IDFC First Bank, while also improving weak stock market sentiment.
Businesses including Nestlé, Samsung, and LG are expected to benefit, alongside millions of consumers. Analysts say the move will win Modi political dividends ahead of November’s key Bihar elections, where unemployment has dented his party’s prospects. Unlike income tax cuts that affect only a small share of the population, the GST reduction reaches nearly everyone.
The announcement came just a day after Modi’s Independence Day speech, in which he urged Indians to buy domestically made products amid growing calls to boycott U.S. goods. Relations with Washington have soured following President Donald Trump’s decision to raise tariffs on Indian imports to 50% starting August 27, after trade talks collapsed.
Critics say the tax reforms are politically timed, but the ruling BJP has framed them as a “Diwali gift” of simpler taxes and more savings. With U.S. tariffs adding fresh pressure and domestic elections looming, Modi’s bold tax reset is as much about economics as it is about political survival.
