To boost domestic consumption, the Indian government announced on Wednesday that it would lower taxes on hundreds of consumer goods, from air conditioners to small vehicles, as New Delhi works to protect its economy from the impact of high import duties from the United States.
The statement follows the imposition of steep tariffs by US President Donald Trump last month, which threaten to cut into a part of New Delhi’s outbound shipments to the largest market in the world.
At a press conference late on Wednesday, India’s finance minister Nirmala Sitharaman said that a strong government panel had approved the lower consumption tax, also known as the goods and services tax. They will go into effect on Sep 22, the first day of a significant Hindu holiday that comes before October’s Diwali festival.
According to the Finance Ministry, the government’s most recent reform reduces the consumption tax levels from the previous four tiers of five percent, 12 percent, 18 percent, and 28 percent to a two-rate structure of five percent and 18 percent.
Although a special rate of 40 percent is planned on select products, such as luxury cars, tobacco, and cigarettes, most goods will be subject to lesser taxes. Purchases of health and life insurance would not be subject to taxes.
Indian Prime Minister Narendra Modi’s strategy to protect the economy from the shock of US tariffs, which are predicted to affect an estimated $48.2 billion worth of Indian exports, includes lowering taxes.
“The wide-ranging reforms will improve lives of our citizens and ensure ease of doing business for all, especially small traders and businesses,” Modi said in a post on X.
In response to India’s continued purchase of Russian oil, Trump this month imposed additional tariffs on Indian goods by 25 percent, bringing the total to 50 percent and strained relations between the two largest democracies in the world.
Although trade relations between the US and India have grown recently, they are nevertheless susceptible to internal political pressures and disagreements over market access. Authorities have cautioned that the additional taxes may render shipments to the US economically unfeasible, leading to job losses and a slowdown in economic growth.
India is also attempting to increase its exports to other global markets, including those in Europe, Latin America, Africa, and Southeast Asia, to lessen the impact.
As India seeks to lessen its dependence on the US market, trade talks with the European Union have become more urgent. Additionally, the administration is talking about financial incentives, such as favourable bank loan rates for exporters.
Trade negotiations underway with the European Union have gained renewed urgency as India works to reduce its dependence on the U.S. market. The government is also discussing financial incentives that would include favorable bank loan rates for exporters.