On August 15, 2025, the historic Red Fort in Delhi was once again the stage for a major announcement as Indian Prime Minister Narendra Modi addressed the nation during the country’s Independence Day celebrations. Yet, it wasn’t just a ceremonial speech this year. The very next day, Modi’s government unveiled what’s being called the biggest tax overhaul since 2017—a move that’s already sending ripples through India’s economy, its political landscape, and its ongoing trade dispute with the United States.
In a bold step, the government announced sweeping changes to the goods and services tax (GST) regime, aiming to make daily essentials and electronics more affordable for millions of Indians. Starting in October 2025, the controversial 28% GST slab—previously levied on big-ticket items like cars and electronics—will be abolished. Nearly all items that were taxed at 12% will shift to the much lower 5% slab, a change that’s expected to benefit not only everyday consumers but also major companies such as Nestlé, Samsung, and LG Electronics, according to Reuters.
But there’s more to this story than just numbers and percentages. Modi’s tax cuts come at a time when U.S.-India trade relations are under significant strain. Just days before the announcement, U.S. President Donald Trump raised tariffs on Indian imports to a hefty 50%, effective August 27, 2025. In his Independence Day speech, Modi didn’t mince words, urging Indians to “use more goods made domestically”—a clear echo of mounting calls from his supporters to boycott American products in response to Washington’s latest tariffs.
“GST reduction will impact everyone, unlike cuts to income tax, which is paid by only 3%–4% of the population. Modi is doing this as he is under a lot of pressure due to U.S. policies,” observed Rasheed Kidwai, a fellow at the Observer Research Foundation in New Delhi, as reported by The Straits Times. Kidwai also pointed out that the move would likely buoy the stock market, now a major political barometer given the surge in retail investors.
India’s GST system, introduced in 2017, was supposed to unify the country’s patchwork of state-level taxes into a single, streamlined regime. However, it quickly drew criticism for its complexity, with products and services taxed at four different rates—5%, 12%, 18%, and 28%. The system’s quirks became almost legendary: in 2024, for example, caramel popcorn was taxed at 18%, while salted popcorn faced only a 5% levy, a difference that left many scratching their heads and fueled wider complaints about the tax code’s inconsistencies.
The new reforms aim to simplify things considerably. By scrapping the 28% slab and moving most 12% items to 5%, the government hopes to make a wide range of consumer goods and packaged foods more affordable. According to government data cited by Reuters, the 28% and 12% slabs together accounted for 16% of India’s annual GST revenue—roughly $250 billion in the last fiscal year. That’s a significant chunk, and the cuts are expected to cost both state and federal governments about $20 billion annually.
Yet, there’s a silver lining for the broader economy. Analysts at IDFC First Bank estimate the cuts could boost India’s GDP by 0.6 percentage points over the next 12 months. That’s no small feat for a country where consumer spending is a key driver of growth. The move is also seen as a much-needed shot in the arm for India’s stock market, which has been suffering from weak sentiment in recent months.
Of course, every policy has its winners and losers. The tax cuts are widely expected to benefit ordinary Indians by making essentials and electronics cheaper. Companies like Nestlé, Samsung, and LG Electronics are also likely to see a boost as their products become more affordable to the masses. But the government’s own coffers will take a hit, with $20 billion in lost revenue—a figure that has some economists raising their eyebrows.
“Any tax cut has wide public appreciation. But of course, the timing is purely determined by political exigencies,” said Dilip Cherian, communications consultant and co-founder of Indian public relations firm Perfect Relations, in an interview with The Straits Times. Cherian suggested that the move reflects both frustration and a recognition of widespread public pushback against high and complicated tax rates.
It’s hard to ignore the political context. Bihar, one of India’s most populous and politically significant states, heads to the polls in November. A recent survey by the VoteVibe agency showed Modi’s opposition gaining ground, largely due to a lack of jobs. For Modi and his ruling Bharatiya Janata Party (BJP), the timing of the tax cuts could hardly be more strategic. The BJP has been quick to seize on the announcement, posting on X (formerly Twitter) that on the Hindu festival of lights, Diwali, “a brighter gift of simpler taxes and more savings is waiting for every Indian.”
Meanwhile, the trade standoff with the U.S. shows no signs of easing. The latest round of talks between New Delhi and Washington, scheduled for August 25–29, has been called off following the collapse of earlier negotiations over issues like farm and dairy sector access and India’s continued purchases of Russian oil. Modi, for his part, has vowed to protect India’s farmers, fishermen, and cattlemen—groups that have often felt vulnerable in the shifting tides of global trade.
The GST overhaul is not without precedent. When the system was first introduced in 2017, it was hailed as India’s most ambitious economic reform since independence, aiming to break down barriers between states and create a unified national market. But its rollout was rocky, and the subsequent years saw frequent tweaks and mounting criticism from businesses and consumers alike.
Now, by simplifying the tax structure and lowering rates on essentials and electronics, Modi’s government is betting that it can both stimulate the economy and shore up political support at a crucial moment. It’s a gamble, to be sure—one that will test the government’s ability to balance fiscal responsibility with popular demand.
As the dust settles, one thing is clear: these reforms are set to touch every corner of Indian life, from the price of a smartphone to the mood on the stock market floor. Whether Modi’s “brighter gift” will pay off in the long run remains to be seen, but for now, India is bracing for a new chapter in its economic story—one marked by lower taxes, cheaper goods, and no shortage of political intrigue.
