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The report suggests that from October, several daily essentials and electronic items will become cheaper. This will benefit both consumers and major companies such as Nestlé, Samsung, and LG Electronics. The announcement came just a day after the PM, in his Independence Day speech, urged people to buy more locally made products.
The announcement was made in the backdrop of the steep 50% tariffs that the US has imposed on India starting August 27.
The tax cuts are expected to lift weak stock market sentiment and could bring political gains for Prime Minister Narendra Modi, especially ahead of a key election in Bihar in November. Analysts have told Reuters the GST reduction will be felt more widely than income tax cuts, which only a small section of the population pays. The move is also seen as a response to pressure created by US trade policies. With more small investors active in the markets now, boosting stock performance has become politically important too.
Why current GST system needed reform?
The current GST system is under four different slabs which is 5%, 12%, 18% and 28%. At times, the system has drawn ridicule for odd classifications, such as taxing caramel popcorn at 18% while salted popcorn was taxed at only 5%.
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Under the new changes, the 28% slab, which includes electronics and cars, will be scrapped. Many products from the 12% category will be shifted to the 5% bracket, reducing costs for packaged foods and other consumer goods. However, government data shows that the 28% and 12% slabs together made up 16% of India’s GST revenue of about $250 billion last year.