India’s Prime Minister Narendra Modi said the reduction in consumption taxes, that comes into effect Monday, will bolster household incomes and businesses, spurring the nation’s economic growth. 

The cuts in the goods and services tax (GST) “will accelerate India’s growth story,” Modi said in a televised address to the nation Sunday. “It will make businesses and investments more attractive.”

Earlier this month, India overhauled the complex GST regime by cutting taxes on most items of everyday use, premiums on insurance policies and vehicles. The new rates, that come into effect on Sept 22, will tax most items at either 5% or 18% rate. The tax reduction is also aimed at boosting consumer spending as the nation’s economy faces headwinds from US President Donald Trump’s punishing 50% tariffs.

Modi said large parts of India’s 1.4 billion population will stand to benefit from the “double bonanza” of income tax cuts announced in Feburary, and GST rate reductions. The decisions will save people 2.5 trillion rupees, allowing them to spend ahead of the festive period, he added. 

India’s weeks-long festive season culminates with the Hindu-festival of Diwali next month. Consumer spending during this period usually makes up about a third of some companies’ annual sales.

The prime minister also urged the citizens to buy locally-made products. “What the nation needs and what can be made in India should be made within India itself,” Modi said. 

The push for higher domestic consumption is part of Modi’s broader strategy to increase India’s self-reliance amid rising protectionism around the world — a trend he had criticised as economic selfishness in August. 

The move will help boost an economy that isn’t growing fast enough to meet Modi’s goal for India to become a developed nation by 2047. India’s economy is expected to expand at its weakest pace in five years, in the fiscal year ending March 2026.

Source: Bloomberg

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