India Plans Biggest GST Cuts in Eight Years to Boost Consumption
India is set to consider its largest consumption tax overhaul in nearly a decade, as federal and state ministers meet for a two-day session from Wednesday. The Goods and Services Tax (GST) panel, chaired by Finance Minister Nirmala Sitharaman, will consider reducing rates on more than 400 items, including essentials such as toothpaste and shampoo, as well as small cars, air conditioners, and televisions. The move follows Prime Minister Narendra Modi’s push for greater self-reliance, aiming to counter the impact of steep U.S. tariffs on Indian exports.
The proposal includes simplifying the tax regime to a two-rate structure of 5% and 18%, down from the current four-rate system, while maintaining higher levies on luxury and “sin” goods, such as cigarettes. Key FMCG players like Hindustan Unilever and Godrej, alongside consumer electronics giants Samsung, LG, and Sony, stand to benefit. Automakers including Maruti, Toyota, and Suzuki are also expected to gain from lower levies. The plan could boost domestic consumption, with India’s economy already posting stronger-than-expected 7.8% growth in the June quarter.
However, the cuts are expected to cost about $21 billion in revenue losses, disproportionately affecting state governments. To offset this, the panel may discuss raising taxes on high-end electric vehicles, premium apparel, and business-class air travel. While states are broadly supportive, debates are likely to intensify over how to balance revenue needs with the push to spur household demand.
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