Modi gives tax boon to India's economy amid Trump tariff tensions

Indian markets rallied connected Monday arsenic Prime Minister Narendra Modi's precocious revealed taxation cuts extended a acquisition to a home system that inactive faces the teeth of U.S. tariffs.

The Nifty 50 scale precocious 1%, with the BSE Sensex adding 0.84%. In currencies, the U.S. dollar surrendered 0.18% against the rupee.

In an extended Independence Day code connected Friday, Prime Minister Narendra Modi made a concerted push for self-reliance and proposed a spate of fiscal reforms. New Delhi present plans a two-rate operation of 5% and 18% nether wide-spanning changes to the goods and services taxation (GST) regime, and plans to abolish the erstwhile 12% and 28% levies imposed connected immoderate items, Reuters cited a authorities authoritative arsenic saying connected Friday. The quality was besides reported by section media.

"The reforms purpose to simplify compliance, little taxation rates, and modernise the GST model to marque it much growth-oriented. Industry executives expect measures specified arsenic rationalising rates into 2 slabs, easing the taxation load connected micro, tiny and mean enterprises (MSMEs), cutting levies connected indispensable goods, and utilizing technology-driven processes similar pre-filled returns and faster refunds to promote investment," the India Brand Equity Foundation said, adding that manufacturing, logistics, lodging and user goods could basal to gain.

India's autos manufacture could besides look arsenic 1 of the beneficiaries of the caller taxation policies aft a sluggish agelong successful caller months. Sales of India's rider vehicles, which see cars, added 4.2% percent successful the 2024 calendar year, the Society of Indian Automobile Manufacturers said successful January – the slowest maturation gait successful 4 years, according to Reuters.

Auto assemblage stocks saw increases during the Monday session, arsenic Maruti Suzuki India adding 8.75%, portion Hyundai Motor India roseate by 8.15%.

"I'm surely affirmative astir the announcement, and the autos assemblage being a comparative laggard successful caller quarters, truthful not astonishing to spot that assemblage bounce backmost rather strongly," James Thom, elder concern manager connected the Asian equities squad astatine Aberdeen, told CNBC's "Inside India connected Monday."

Modi's taxation overhaul could enactment up India's economy, which the Reserve Bank of India sees increasing 6.5% successful the 2025-2026 fiscal year, astatine a clip of heavy geopolitical uncertainty stoked by Washington's sweeping alleged "reciprocal tariffs." New Delhi successful peculiar has fallen successful the crosshairs of U.S. President Donald Trump's medication implicit its ongoing purchases of Russian crude, with Washington imposing an further 25% levy connected Indian imports — bringing full duties to 50% — owed to instrumentality effect astatine the extremity of this month.

"India is simply a home depletion story. Exports is simply a comparatively tiny contributor. So this [tax overhaul] could much than offset that interaction of tariffs," Aberdeen's Thom said.

"From a cardinal standpoint, absolutely, I deliberation the changes to the GST authorities volition beryllium supportive near-term for depletion arsenic it comes done aboriginal successful the year. And depletion has been anemic successful India for rather immoderate clip now, truthful this is simply a existent benignant of boost to the economy, if you like, fixed India's system is truthful babelike connected home consumption."

Domestic intake is "one of the astir compelling indicators investors are intimately monitoring," and the "largest operator of economical maturation successful India," with a 61.4% GDP publication successful the 2024-25 fiscal year, Deloitte said successful an August report.

"Notably, municipality depletion and a displacement successful spending preferences toward luxury goods are emerging arsenic cardinal pillars of this momentum," it said.

India Ratings & Research meanwhile forecast India's backstage last depletion rate successful the fiscal twelvemonth to the extremity of March 2026 volition grow by an yearly 6.9%, outpacing a broader 6.3% GDP maturation outlook implicit the period, connected the backmost of debased existent wage increases, declines successful household savings and a boost to idiosyncratic loans.

"A crisp diminution successful ostentation has improved the prospects for unchangeable depletion maturation successful FY26," it added. India's retail ostentation has slowed from 4.31% successful January to its lowest since 2017 astatine 1.55% successful July.