Indian financial markets are buzzing with optimism this September, as sweeping tax reforms and strategic policy moves bolster confidence in the country’s economic resilience. On September 5, 2025, Indian stocks showed early strength, with the Nifty 50 and Sensex indices poised to open higher after a robust 1.1% rally. The main drivers? Significant tax cuts and mounting hopes that the United States will soon lower interest rates, according to reporting by The Economist and The Times of India.
This renewed market vigor comes on the heels of a major policy shakeup: the Goods and Services Tax (GST) Council’s introduction of a streamlined two-rate GST structure, slashing taxes on a range of everyday goods. The shift has particularly benefited auto and consumer shares, which led the rally, while energy stocks lagged behind due to fresh levies on oil-based businesses. Despite foreign investors selling nearly 1.1 billion rupees in shares, domestic investors stepped in with over 22 billion rupees in buying, underscoring strong local confidence in the market’s outlook.
But these reforms are more than just a market story—they’re a bold economic counterpunch. In late August, US President Donald Trump slapped a hefty 50% tariff on Indian exports, punishing New Delhi for its continued purchases of Russian oil. The move doubled existing duties and affected over half of Indian goods shipped to the United States, India’s single largest export market. Many assumed such a blow would leave India reeling.
Instead, Prime Minister Narendra Modi’s government responded not with retaliation, but with relief for Indian households and small businesses. The dramatic overhaul of the GST system, set to take effect on September 22—just in time for the bustling Navratri festival season—goes far beyond rejigging tax slabs. It’s a calculated effort to rewire India’s economic resilience, as The Economist put it, by “weaponizing the domestic consumer.”
That’s no small feat. Consumption already makes up 61% of India’s GDP, a far larger share than export-heavy Asian peers like Vietnam or China. As The Economist noted, India’s export of goods amounts to just 11% of GDP, compared to Vietnam’s staggering 85%. This gives New Delhi maneuvering room that most economies targeted by Trump’s trade policies simply don’t have. By cutting taxes on everything from cars to cooking oil, the Modi administration is deliberately making the domestic consumer the shock absorber against external shocks like US tariffs.
“This is a game changer,” Parle Products Vice President Mayank Shah told The Times of India. “The reforms will act as a ‘powerful catalyst’ for demand, especially in rural and semi-urban markets,” echoed Dabur CEO Mohit Malhotra, also speaking to The Times of India.
So what exactly does GST 2.0 entail? The old GST structure, with its four main slabs (5%, 12%, 18%, and 28%), is being consolidated into just two primary rates: 5% and 18%. There’s a third, 40% bracket for so-called ‘sin’ goods like tobacco, aerated drinks, and yachts. The cuts are sweeping: life and health insurance premiums are now completely exempt from GST; small cars move from a punishing 29% tax to 18%, while SUVs drop from 50% to 40%; all white goods—including fridges, air conditioners, and TVs—move from 28% to 18%; and over 33 life-saving medicines, including cancer and rare disease drugs, are moved to 0% GST. Even food items like paneer, ghee, namkeen, and essentials like shampoos, toothbrushes, and hair oil are now either nil-rated or shifted to the 5% slab.
The reforms are expected to add up to 30 basis points to India’s GDP this fiscal year, enough to offset some of the adverse effects of Trump’s tariffs, according to HDFC Bank economist Sakshi Gupta. UBS analysts have called the tax cuts “well-timed counter-cyclical measures” necessary to sustain growth. While the cuts are fiscally costly—estimated at 94,800 crore rupees—Revenue Secretary Arvind Srivastava said the reform is “fiscally sustainable for both the Centre and states,” with expectations that higher compliance and consumption will make up for any shortfall. Finance Minister Nirmala Sitharaman described the overhaul as “next-generation GST reform,” emphasizing its focus on structural reform, rate rationalization, and ease of living.
Rural India, in particular, is emerging as Modi’s economic firewall. Agricultural wages have grown at the fastest pace in eight years, according to Goldman Sachs, and rural consumption has outpaced urban spending for six consecutive quarters, NielsenIQ data shows. A strong monsoon and improved harvest prospects have only strengthened rural purchasing power, and fast-moving consumer goods (FMCG) giants like Dabur, Britannia, and Pidilite Industries are doubling down on small-town India. These companies are expanding operations in towns with populations under 12,000, betting big on the spending power of rural families.
“We see large volumes of contribution coming from rural segments,” Archian Foods co-founder Nikhil Doda told Bloomberg. Pidilite’s Joint Managing Director Sudhanshu Vats noted that rural India remains “insulated from the direct impact of US tariffs” and continues to show “buoyant demand driven by low inflation and strong agricultural income.”
The GST reforms also send a clear signal to global investors that India remains a stable, reform-oriented market, even amid global trade volatility. By simplifying GST slabs, expediting input tax refunds for export-heavy sectors like textiles and chemicals, and cutting compliance hurdles, the government is reassuring foreign companies and sustaining investment flows. HSBC analysts predict that continued policy reforms and steady company earnings will eventually pull overseas money back into India’s stock market, even as foreign investors have recently pulled out cash.
On the geopolitical front, Indian officials have stood firm in defending their Russian oil imports despite US pressure. External Affairs Minister S Jaishankar, at a forum in Delhi, remarked, “It’s funny to have people who work for a pro-business American administration accusing other people of doing business. If you have a problem buying refined products from India, don’t buy them. Nobody is forcing you.” Oil Minister Hardeep Singh Puri added, “India has not broken rules. India has stabilized markets and kept global prices from spiraling.” He pointed out that Europe itself turned to Indian fuels after banning Russian crude.
Ultimately, these reforms are not just economic measures—they’re a strategic and political statement. By launching tax cuts ahead of the festive season, Modi’s government is not only managing the economy but also sentiment. As The Economist observed, “talk of declining exports will seem abstract compared with the feel-good factor of buying a new washing machine or dining out somewhere nice.”
For millions of Indian households, the GST overhaul means everyday essentials are more affordable and the country’s economic outlook feels a little brighter. In the court of public opinion, as Diwali approaches and the monsoon recedes, many may credit Modi for bringing out the sun—a sentiment echoed by both voters and market watchers alike.
