NEW DELHI: The Indian government is considering significant goods and services tax reductions to counter potential US trade tariffs and support middle-income households.
Any final decision on these tax cuts ultimately rests with the GST Council, which includes representatives from state governments and has struggled to achieve broad consensus in the past.
If approved, the cuts would strain public finances, according to experts.
However, they said, they could also help to offset tariff risks and burnish Modi’s credentials among the middle class.
The proposal comes ahead of expected elections later this year in Bihar, a large, Hindu-majority state of 130 million people that is a key political battleground for Modi.
“The popular economic narrative right now is that of Trump’s 50 percent tariffs and how the US-India relationship is seeing setbacks,“ Deepanshu Mohan, economist at O.P. Jindal Global University, told AFP.
“The GST readjustment is a strong response from Modi in that context. It’s Modi telling the middle class: ‘We are trying to make sure you have enough at your end,‘” Mohan said.
But, he added, it was also an acknowledgement that India’s economy had not worked for its “low middle-income class for some time”.
Although economists have called for an overhaul of the GST system for years, Modi’s surprise announcement comes as US-India ties hit a multi-decade low.
Economists estimate that if the two countries fail to sign a trade deal, Trump’s tariffs could drag India’s GDP growth below six percent this fiscal year, lower than the central bank’s projections of 6.5 percent.
New Delhi’s stance on Russian oil imports will become clearer by late September as most cargoes this month were contracted before Trump’s threats, according to trade intelligence firm Kpler.
Kpler analyst Sumit Ritolia told AFP that while Indian refiners are showing “growing interest” in US, West African and Latin American crude, it was more indicative of “greater flexibility, not a deliberate pivot”.
“Until there’s a clear policy shift or sustained change in trade economics, Russian flows remain a core part of India’s crude basket,“ Ritolia said.
As the clock ticks down on the tariff hike, the state of US-India trade negotiations remains uncertain.
New Delhi says it is committed to striking a deal, but Indian media reports suggest US negotiators have postponed a planned late-August visit to the Indian capital. – AFP
