Starting Monday, the daily economic burdens of millions of Indians could ease slightly.
Staples like milk and bread, life and medical insurance, and life-saving drugs will become tax-free. Consumption tax on small cars, television sets, and air conditioners will drop from 28% to 18%. Other common goods like hair oil, toilet soap, and shampoo will be taxed at a marginal 5% instead of 12% or 18%.
The sweeping cuts are part of Prime Minister Narendra Modi's major overhaul of India's complex goods and services tax (GST) regime. This is expected to both simplify the tax code and give flagging household consumption - which makes up over half of India's gross domestic product (GDP) - a much-needed fillip.
The timing couldn't be more opportune.
Lower GST rates coincide with the beginning of a long festive season when Indians typically open their purse strings to buy everything from new cars to clothes. This four-month period also brings in a bulk of yearly sales for consumer goods companies such as packaged food makers and apparel manufacturers. The hope is, reduced taxes will mitigate some of the impact of the US's bruising tariffs on India, leaving people with more money to spend and sprucing up the domestic economy.
Companies, including Reliance, consumer staples giant HUL, and automaker Mahindra & Mahindra will pass on lower taxes to consumers to boost demand. Carmakers are banking on the cuts with share prices up 6-17% since Modi's announcement, while dealerships report rising enquiries amid unsold inventories.
The cuts are expected to significantly boost consumer spending in India, especially during the festive season, a critical time for sales.
