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Narendra Modi, India\u2019s prime minister, during the nation\u2019s Independence Day ceremony at Red Fort in New Delhi, India, on Friday, Aug. 15, 2025.<\/p>\n
Bloomberg | Bloomberg | Getty Images<\/p>\n<\/div>\n<\/div>\n<\/div>\n
Indian markets rallied on Monday as Prime Minister Narendra Modi\u2019s recently revealed tax cuts extended a gift to a domestic economy that still faces the teeth of U.S. tariffs.<\/p>\n
The Nifty 50 index advanced 1%, with the BSE Sensex adding 0.84%. In currencies, the U.S. dollar surrendered 0.18% against the rupee.<\/p>\n
In an extensive Independence Day speech on Friday, Prime Minister Narendra Modi made a concerted push for self-reliance<\/a> and proposed a spate of financial reforms<\/a>. New Delhi now plans a two-rate structure of 5% and 18% under wide-spanning changes to the goods and services tax (GST) regime, and plans to abolish the previous 12% and 28% levies imposed on some items, Reuters cited<\/a> a government official as saying on Friday. The news was also reported by local media<\/a>.<\/p>\n \u201cThe reforms aim to simplify compliance, lower tax rates, and modernise the GST framework to make it more growth-oriented. Industry executives expect measures such as rationalising rates into two slabs, easing the tax burden on micro, small and medium enterprises (MSMEs), cutting levies on essential goods, and using technology-driven processes like pre-filled returns and faster refunds to encourage investment,\u201d the India Brand Equity Foundation said, adding that manufacturing, logistics, housing and consumer goods could stand to gain.<\/p>\n India\u2019s autos industry could also emerge as one of the beneficiaries of the new tax policies after a sluggish stretch in recent months. Sales of India\u2019s passenger vehicles, which include cars, added 4.2% percent in the 2024 calendar year, the Society of Indian Automobile Manufacturers said in January<\/a> \u2013 the slowest growth pace in four years, according to Reuters<\/a>.<\/p>\n Auto sector stocks saw increases during the Monday session, as Maruti Suzuki India adding 8.75%, while Hyundai Motor India rose by 8.15%.<\/p>\n \u201cI\u2019m certainly positive about the announcement, and the autos sector being a relative laggard in recent quarters, so not surprising to see that sector bounce back quite strongly,\u201d James Thom, senior investment director on the Asian equities team at Aberdeen, told CNBC\u2019s \u201cInside India on Monday.\u201d<\/p>\n<\/div>\n Modi\u2019s tax overhaul could shore up India\u2019s economy, which the Reserve Bank of India sees growing 6.5% in the 2025-2026 fiscal year, at a time of deep geopolitical uncertainty stoked by Washington\u2019s sweeping so-called \u201creciprocal tariffs.\u201d New Delhi in particular has fallen in the crosshairs of U.S. President Donald Trump\u2019s administration over its ongoing purchases of Russian crude, with Washington imposing an additional 25% levy<\/a> on Indian imports \u2014 bringing total duties to 50% \u2014 due to take effect at the end of this month.<\/p>\n \u201cIndia is a domestic consumption story. Exports is a relatively small contributor. So this [tax overhaul] could more than offset that impact of tariffs,\u201d Aberdeen\u2019s Thom said.<\/p>\n \u201cFrom a fundamental standpoint, absolutely, I think the changes to the GST regime will be supportive near-term for consumption as it comes through later in the year. And consumption has been weak in India for quite some time now, so this is a real sort of boost to the economy, if you like, given India\u2019s economy is so dependent on domestic consumption.\u201d<\/p>\n Domestic intake is \u201cone of the most compelling indicators investors are closely monitoring,\u201d and the \u201clargest driver of economic growth in India,\u201d with a 61.4% GDP contribution in the 2024-25 fiscal year, Deloitte said in an August report<\/a>.<\/p>\n \u201cNotably, urban consumption and a shift in spending preferences toward luxury goods are emerging as key pillars of this momentum,\u201d it said.<\/p>\n India Ratings & Research meanwhile forecast India\u2019s private final consumption rate<\/a> in the fiscal year to the end of March 2026 will expand by an annual 6.9%, outpacing a broader 6.3% GDP growth outlook over the period, on the back of low real wage increases, declines in household savings and a boost to personal loans.<\/p>\n \u201cA sharp decline in inflation has improved the prospects for stable consumption growth in FY26,\u201d it added. India\u2019s retail inflation has slowed from 4.31% in January<\/a> to its lowest since 2017 at 1.55% in July<\/a>.<\/p>\n<\/div>\n<\/div>\n\n
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