As a “Diwali gift,” Indian Prime Minister Narendra Modi announced tax cuts aimed at reviving the economy. The news came in a tweet and was pitched as a major reform. It also arrives just as Washington slapped steep tariffs on Indian goods, in some cases as high as 50 percent.
The plan is to push “next-generation reforms” of the Goods and Services Tax by October 2025. Officials say the goal is to simplify the tax structure, reduce the number of slabs, and place everyday items into lower brackets. The government wants to move most products now taxed at 12 and 28 percent into new 5 and 18 percent rates. Supporters argue this will boost consumer demand, give small businesses some breathing room, and help micro, small and medium enterprises grow.
The timing is hard to miss. The U.S. recently raised tariffs, combining a 25 percent duty with an extra 25 percent penalty on certain Indian exports. Washington framed the move as part of its pressure campaign against Russia, blaming Moscow for global energy instability. India, however, has kept buying Russian oil and says it will continue.
The new duties threaten major export sectors: textiles, footwear, shrimp, and gems and jewelry. Trade talks between Washington and New Delhi have stalled, with the U.S. canceling a planned meeting. That leaves the path forward unclear.
India has labeled the American tariffs “unlawful and unreasonable.” Officials are now focused on shoring up the domestic economy and finding new export markets to soften the blow. Whether the tax cuts will balance out the impact of U.S. trade penalties remains to be seen.
