Mumbai. Indian Prime Minister Narendra Modi’s pressure to reduce consumption taxes on daily goods could provide billions of dollars of annual relief and help boost demand in an economy reeling under the severe impact of US customs duties, experts say.
Us President Donald Trump has threatened to double the import dut TAG_OPEN_div_80 y from 25 per cent to 50 per cent as punishment for India’s purchase of oil from Russia. This potential move makes the future of the world’s fifth-largest economy uncertain. Indian exporters have warned that it will lead to loss of orders and a serious crisis in jobs.
New Delhi called Washington’s move “unfair, unjust and unacceptable”. However, in india’s Independence Day speech last week, Modi had promised to “reduce the tax burden on the common man” and tried to mitigate the US attack.
TAG_OPEN_div_76 Modi’s proposed Goods and Services Tax (GST) cuts will make goods ranging from small cars to air conditioning cheaper for consumers, economists say.
The GST system is currently based on a complex four-tier structure, in which the tax rate ranges from five to 28 percent. According to Modi’s reforms, most of the goods will fall into two tiers – five per cent or 18 per cent.
TAG_OPEN_div_72 The Indian Prime Minister has called this change a ‘Diwali gift’. Deepawali is the annual Hindu festival of lights, in which consumers spend a lot on items like gold, clothes and consumer electronics.
Large saving
The impact TAG_OPEN_div_68 of Trump’s customs duty policy on India will depend on how much progress will be made in the Russia-Ukraine peace deal and whether New Delhi can find an alternative oil supplier before the US President’s August 27 deadline.
According to TAG_OPEN_div_66 experts, Modi’s tax reform will reduce tax collections by $13-17 billion and help boost domestic demand.
Analyst TAG_OPEN_div_64 s at Emke Global Financial Services called the policy a “welcome step towards increasing domestic consumption”. They estimate that most of the goods currently in the top 28 percent will fall to 18 percent, while ‘almost all’ goods in the 12 percent category will go to the 5 percent level.
Analysts at Motilal TAG_OPEN_div_62 Oswal Financial Services said the changes would benefit many sectors and bring “big savings” to households. However, whether the proposal will be implemented or not is ultimately up to the GST Council. The council consists of representatives of the state government. They have struggled to reach a broad consensus in previous years.
Experts say that if the proposal is approved, the public financial situation may weaken. However, it is also likely to somewhat eliminate the risk of US taxes and increase Modi’s popularity among the middle class.
The proposal comes ahead of bihar elections expected later this year. Bihar is the largest Hindu-majority state with a population of 130 million. Bihar is considered a major political battleground for Modi.
TAG_OPEN_div_56 “Today’s famous economic story is trump’s 50 per cent tariff duty and disruption in US-India relations,” said Dipansu Mohan, an economist at Jindal Global University. Modi is sending a message to the middle class: “We will ensure that you eventually have enough savings in your hands. ’
TAG_OPEN_div_54 However, he said, “This is also an admission that India’s economy has not been able to provide adequate benefits to the lower middle-income group for some time. ’
Indo-US trade talks
Economists have been demanding reforms in the GST system for years. But modi’s unexpected announcement comes at a time when us-India relations are at an all-time low in the last few decades.
TAG_OPEN_div_48 Economists expect Trump’s customs duties to push India’s GROSS domestic product (GDP) growth below six per cent this year if there is no trade deal between the two countries. This rate will be lower than the Indian central bank’s estimate of 6.5 percent.
India’s position on Russian oil imports will be clear by the end of September as many of the current cargoes are negotiated before Trump’s threat, trade intelligence agency Kepler said. TAG_OPEN_div_46
TAG_OPEN_div_44 “Indian refiners are showing increasing interest in US, West Africa and Latin American crude oil. This shows India’s resilience, but it is not a deliberate strategic change,” said Sumit Ritolia, an analyst at Kepler, adding that Russian oil will remain india’s main source of crude oil supply until there is a clear policy change or a sustained shift in trade strategy. ’
The future of US-India trade talks is still uncertain as the deadline for tariff increase approaches. New Delhi said it was committed to the deal. However, Indian media have claimed that the US negotiators have postponed their visit to India scheduled for the end of August.
प्रतिक्रिया दिनुहोस्