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The
announcement comes after U.S. President Donald Trump introduced
new tariffs last month that threaten a chunk of New Delhi’s
outbound shipments to its world’s biggest market.
Finance Minister Nirmala Sitharaman told a news conference late
Wednesday that the reduced goods and services tax, or
consumption tax, have been approved by an all-powerful
government panel. They will take effect on Sept. 22, the first
day of a major Hindu festival that precedes the festival of
lights, Diwali, in October.
The government’s latest overhaul cuts the consumption tax tiers
to a two-rate structure of 5% and 18% instead of the previous
four tiers of 5%, 12%, 18% and 28%, according to the Finance
Ministry.
A majority of the goods will attract lower taxes, though a
special rate of 40% is proposed on a select few items such as
high-end cars, tobacco and cigarettes. No tax would apply on
purchases of life and health insurance.
Reducing the taxes is a part of Indian Prime Minister Narendra
Modi’s broader plan to insulate the economy from the shock of
U.S. tariffs, expected to hit an estimated $48.2 billion worth
of Indian exports.
“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 the social platform X.
Trump last month imposed an additional 25% tariff on Indian
goods in response to its unabated purchase of Russian oil,
bringing the total tariffs to 50% and straining ties between the
world’s two biggest democracies.
India–U.S. trade relations have expanded in recent years but
remain vulnerable to disputes over market access and domestic
political pressures. Officials have warned the new duties could
make shipments to the U.S. commercially unviable, triggering job
losses and slower economic growth.
To cushion the impact, India is also working on expanding its
exports to other world markets such as Europe, Latin America,
Africa and Southeast Asia.
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.
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