{"id":91523,"date":"2025-08-27T00:07:00","date_gmt":"2025-08-27T00:07:00","guid":{"rendered":"https:\/\/sotnews.agency\/?p=91523"},"modified":"2025-08-27T00:07:00","modified_gmt":"2025-08-27T00:07:00","slug":"make-and-spend-in-india-urges-modi-as-trumps-50-tariffs-kick-in","status":"publish","type":"post","link":"https:\/\/sotnews.agency\/?p=91523","title":{"rendered":"Make and spend in India, urges Modi, as Trump\u2019s 50% tariffs kick in"},"content":{"rendered":"
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\n \t<\/i> Read Time:<\/span>4 Minute, 46 Second <\/div>\n\n <\/div>
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Earlier this month, Indian Prime Minister Narendra Modi made a promise.<\/p>\n

He said that a Diwali gift in the form of a \u201cmassive tax bonanza\u201d was on its way for the common man and the millions of small businesses that power Asia\u2019s third-largest economy.<\/p>\n

Wearing a bright saffron turban and addressing crowds of spectators from the ramparts of Delhi\u2019s Red Fort during Independence Day celebrations, Modi also made a rallying cry for self-reliance, urging small shop owners and businesses to put up boards of \u201cSwadeshi\u201d or \u201cMade in India\u201d outside their stores.<\/p>\n

\u201cWe should become self-reliant \u2013 not out of desperation, but out of pride,\u201d he said. \u201cEconomic selfishness is on the rise globally and we mustn\u2019t sit and cry about our difficulties; we must rise above and not allow others to hold us in their clutches.\u201d<\/p>\n

He has since repeated these comments in at least two other public addresses this week.<\/p>\n

For many watching, this is clearly aimed at countering US President Donald Trump\u2019s brutal 50% tariff rate on India, which kicks in on 27 August. This will disrupt\u00a0millions of livelihoods\u00a0across the country\u2019s export-driven industries that supply everything from clothes to diamonds and shrimp to American consumers.<\/p>\n

Amid the blow, Modi\u2019s message to his countrymen has been loud and clear \u2013 make in India and spend in India.<\/p>\n

The former has proved increasingly difficult, with the share of manufacturing as part of India\u2019s gross domestic product (GDP) stagnating at 15% levels, despite his government rolling out subsidies and production incentives over the years.<\/p>\n

But spurring long-pending tax reforms that immediately put more money into the hands of people could help the government soften some of the blow, experts say.<\/p>\n

And so, after a $12bn income tax giveaway announced in the budget earlier this year, Modi is now aiming for an overhaul of India\u2019s indirect tax architecture \u2013 a reduction and simplification of the\u00a0goods & service tax (GST).<\/p>\n

Donald Trump\u2019s 50% tariff rate on India comes into effect on 27 August<\/figcaption><\/figure>\n

GST, which was introduced eight years ago, replaced a maze of indirect taxes to reduce compliance and the cost of doing business.<\/p>\n

But experts say it has\u00a0too many thresholds\u00a0and exemptions, making the system extremely complicated. They\u2019ve repeatedly called for it to be revamped.<\/p>\n

Now, Modi has precisely promised that, with India\u2019s finance ministry putting out a proposal for a simplified two-tier GST system.<\/p>\n

\u201cCombined with the income tax cut in place from April 2025\u2026 the GST rate reforms [likely worth US$20bn; \u00a314.7bn] should together provide a meaningful push to consumption,\u201d analysts from Jeffries, a US brokerage house, said after the announcement.<\/p>\n

Private consumption is a mainstay of India\u2019s economy, contributing to nearly 60% of the country\u2019s GDP. While rural spending \u2013 supported by a bumper harvest \u2013 has remained strong, demand for goods and services in cities has continued to slow down due to lower wages and\u00a0job cuts\u00a0in major sectors like IT, post the pandemic.<\/p>\n

Modi\u2019s \u201cfiscal stimulus\u201d or tax cuts should help ensure a consumption recovery, according to investment banking firm Morgan Stanley. It will push GDP up and drag inflation down.<\/p>\n

\u201cThis is particularly crucial amid headwinds from ongoing global geopolitical tensions and adverse global tariff-related developments that might impair external demand,\u201d Morgan Stanley said.<\/p>\n

Among the sectors most likely to benefit from the tax breaks are consumer-facing ones such as, scooters, small cars, garments and even things like cement that goes into making homes, where demand typically picks up pace around Diwali.<\/p>\n

While the specifics are unknown, most analysts estimate that the revenue loss on account of a lower GST would be offset by surplus levy collections and higher than budgeted dividends from India\u2019s central bank.<\/p>\n

According to Swiss investment bank UBS, the GST cuts will also have a larger \u201cmultiplier effect\u201d than the\u00a0previous corporate and income tax cuts\u00a0undertaken by Modi, as they \u201cdirectly affect consumption at the point of purchase, potentially leading to higher consumer spending\u201d.<\/p>\n

Tariffs disrupt millions of livelihoods across the country\u2019s export-driven industries such as textiles<\/figcaption><\/figure>\n

Modi\u2019s tax handouts could also increase the probability of a further interest rate reduction by India\u2019s central bank, which has already slashed rates by 1% in the past few months \u2013 something that is likely to spur more lending, according to analysts.<\/p>\n

This, along with a boost in the salaries of some half a million government employees that kicks in early next year, will help India\u2019s economy retain its growth momentum, they say.<\/p>\n

India\u2019s stock markets have cheered these announcements. And despite the panic caused by trade uncertainties, earlier this month, India also got a rare sovereign rating upgrade from S&P Global, after a gap of 18 years. A sovereign rating measures how risky it is to lend to a government or invest in a country.<\/p>\n

This is significant because it could lower the government\u2019s borrowing costs and improve foreign investment flows into the country.<\/p>\n

But even as Modi rushes through with long-delayed reforms, India\u2019s growth prospects have slowed significantly from the 8% levels seen a few years ago, and its external crisis shows no sign of ebbing.<\/p>\n

The\u00a0war of words\u00a0between Delhi and Washington, especially over the latter\u2019s energy purchases from Russia, have only intensified and trade negotiations, which were set to begin earlier this week, have been called off.<\/p>\n

Meanwhile, at 50%, the tariffs on India are akin to\u00a0a sanction on trade\u00a0between the world\u2019s biggest and fastest-growing economies, say experts \u2013 a scenario that would have been unthinkable even just a few months ago.<\/p>\n<\/div>\n

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