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Prime Minister Narendra Modi is preparing India’s most sweeping tax reform in nearly a decade, with a proposal to cut goods and services tax (GST) on almost 175 products, including shampoos, hybrid cars and televisions, in a move aimed at boosting domestic consumption and cushioning the blow from faltering exports to the United States.
The plan, expected to be finalized by the GST Council on September 3–4, could reduce levies by at least 10 percentage points across a range of household staples, consumer electronics and vehicles. The reform underscores Modi’s dual strategy: appealing to middle-class households with lower prices ahead of the Diwali shopping season, while also shoring up India’s manufacturing base under his “Make in India” and “self-reliance” drives.
Cheaper Daily Goods
Under the proposal, GST on widely used consumer items such as toothpaste, talcum powder and shampoo would fall from 18% to 5%, according to two officials with knowledge of the deliberations. The change is expected to deliver an immediate boost to companies like Hindustan Unilever and Godrej Industries, which dominate India’s fast-moving consumer goods market.
“The intent is clear, reduce the tax burden on items that affect millions of households, while spurring demand for consumer-facing industries,” said one senior government official, who asked not to be named as discussions remain ongoing.
The reforms would also target big-ticket electronics. Air conditioners and television sets, currently taxed at 28%, could see their rates cut to 18%. The change would be timely before India’s peak festive season when retailers including Samsung, LG and Sony record their highest annual sales.
Auto Industry Shake-Up
The automobile sector, India’s third-largest, stands to gain the most. Modi’s government has proposed lowering the GST on small petrol hybrid cars from 28% to 18%, marking a win for Japanese carmakers Toyota and Suzuki, who have long lobbied for recognition of hybrid technology as a bridge between fossil fuels and electric mobility.
“Lowering hybrid taxes will make these cars more attractive to cost-sensitive Indian buyers,” said R.C. Bhargava, chairman of Maruti Suzuki, India’s largest carmaker. “It will expand choices for consumers and accelerate the shift to cleaner vehicles.”
But the move has triggered pushback from domestic EV leaders Tata Motors and Mahindra & Mahindra, who fear hybrids could undercut the government’s aggressive electrification targets. Currently, fully electric cars attract just 5% GST, one of the lowest rates globally.
“The risk is that hybrids become a comfortable middle ground for consumers and delay EV adoption,” said an executive at Tata Motors, speaking on condition of anonymity.
Two-wheeler manufacturers also stand to benefit. Taxes on motorcycles and scooters with engines under 350cc, which account for 95% of the 20 million two-wheelers sold annually, would fall significantly, helping companies such as Bajaj Auto, Hero MotoCorp and TVS Motor.
Winners and Losers
While smaller cars and consumer staples are set for relief, larger vehicles could face higher levies. The government has proposed raising GST on big cars, defined as those over 4 meters long with large engines, from 28% to 40%. However, officials suggested additional surcharges may be adjusted to keep the overall tax burden at about 50%, roughly unchanged from today.
Analysts warn that while the reforms may lift consumption, they could also create distortions. “Taxing bigger cars higher while incentivizing hybrids is politically attractive but may complicate India’s broader electrification and climate goals,” said Namrata Acharya, an independent auto analyst based in Mumbai.
Trade Headwinds and Self-Reliance
The timing of the reforms is not accidental. India’s exports have been hit hard by U.S. President Donald Trump’s tariff measures, which have targeted sectors from textiles to farm equipment. By slashing consumption taxes, Modi hopes to drive domestic demand and reduce reliance on foreign markets.
Key export sectors such as fertilizers, farm machinery, and textiles are also in line for GST cuts, with rates dropping from as high as 18% to 5%. Officials believe this will support rural incomes while making Indian manufacturers more competitive.
“The GST overhaul is as much about insulating India from external shocks as it is about pleasing domestic consumers,” said Madhavi Arora, an economist at Emkay Global. “It is a cushion against the volatility of global trade.”
Fiscal Risks
The cuts, however, come with a price tag. GST is a cornerstone of both state and federal budgets, accounting for a large share of India’s tax revenue. A sharp reduction in rates could strain public finances at a time when the government is already balancing higher subsidies and infrastructure spending.
The finance ministry has not provided estimates of revenue foregone, but economists warn the losses could be significant. “Any shortfall will either widen the fiscal deficit or force the government to raise revenue elsewhere,” Arora said.
Some state governments, which share GST revenues, have expressed quiet concern about the potential hit to their finances. Officials said negotiations within the GST Council this week will focus on how to balance relief for consumers with fiscal discipline.
Political Calculus
Politically, the reform allows Modi to showcase himself as a populist leader delivering tangible benefits to households. His Independence Day pledge to make daily goods cheaper resonated widely, and with state elections looming in several regions, lower taxes on consumer items could prove a vote-winner.
“This is classic Modi, framing himself as the people’s reformer while pushing structural changes that also serve broader economic goals,” said Pradeep Kaul, a political analyst based in New Delhi.
The cuts also dovetail with Modi’s call to “buy Indian,” as lower GST rates are expected to encourage domestic consumption of locally manufactured goods, from soaps to scooters.
Looking Ahead
The GST Council meeting on September 3–4 will determine which items make the final list and how deep the cuts go. If approved, the changes could take effect in time for the festive season beginning in October, when consumer spending traditionally spikes.
For businesses, the reforms could reshape the landscape. Consumer goods makers anticipate higher volumes, electronics brands expect a stronger festive season, and automakers may see renewed growth in smaller cars and two-wheelers after years of slowdown.
For households, the changes promise relief at the checkout counter. For policymakers, they represent a delicate balancing act between stimulating demand, protecting fiscal stability, and staying on course with India’s green transition.
“The real test,” said Arora, “will be whether these tax cuts drive long-term growth, or whether they are simply a short-term populist measure in the face of global headwinds.”
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