India's Festive Spending Boost: How Modi's Tax Cuts Are Impacting Consumers

Mon Sep 29 2025 04:44:33 GMT+0300 (Eastern European Summer Time)

Prime Minister Narendra Modi's recent tax cuts are set to alleviate the financial burdens on millions of Indian consumers, coinciding with the festive spending season. Key goods, including essentials and consumer electronics, will see reduced tax rates, aiming to stimulate the economy during this crucial period.

Starting Monday, PM Modi's tax cuts will eliminate GST on staples and reduce rates on various goods. This initiative aims to simplify the tax framework and boost consumption, as the festive season approaches. Analysts predict a positive impact on consumer spending, although concerns about overall tax revenue persist.

Starting Monday, the daily economic burdens of millions of Indians could ease slightly.

Staples like milk and bread, life and medical insurance, and life-saving drugs will become tax-free. Consumption tax on small cars, television sets, and air conditioners will drop from 28% to 18%. Other common goods like hair oil, toilet soap, and shampoo will be taxed at a marginal 5% instead of 12% or 18%.

The sweeping cuts are part of Prime Minister Narendra Modi's major overhaul of India's complex goods and services tax (GST) regime announced earlier this month.

This is expected to both simplify the tax code and give flagging household consumption—which makes up over half of India's gross domestic product (GDP)—a much-needed fillip.

The timing couldn't be more opportune. Lower GST rates coincide with the beginning of a long festive season when Indians typically open their purse strings to buy everything from new cars to clothes.

This four-month period brings in a bulk of yearly sales for consumer goods companies such as packaged food makers and apparel manufacturers.

The hope is, reduced taxes will mitigate some of the impact of the US's bruising 50% tariffs on India, leaving people with more money to spend and sprucing up the domestic economy.

The cuts come off the back of a $12bn income tax giveaway announced in February and lower interest rates from India's central bank, which bode well for a consumption pick-up.

Carmakers are banking on the cuts, with share prices up 6-17% since Modi's August announcement, while dealerships report rising enquiries amid unsold inventory.

However, there are challenges. Many smaller retailers are struggling to adapt to the changes with updated prices and labels.

Despite these concerns, the overall impact of the GST cuts is expected to be positive, boosting purchasing power among middle-class consumers. According to Crisil, a third of an average consumer's monthly expenditure will benefit from the lower taxes.

Yet, the government anticipates a revenue loss of about $5.4bn this year, raising concerns about the fiscal deficit and potential impacts on infrastructure spending.