Swadeshi call grows louder as Trump’s tariffs hit; Modi bets on GST relief
New Delhi : The U.S. administration’s decision to impose a steep 50% tariff on Indian goods has cast a shadow over India’s export prospects, prompting the Centre to accelerate tax reforms aimed at boosting domestic consumption.
The tariff measure, announced by President Donald Trump after an earlier 25% penalty on India’s purchases of Russian oil and defence equipment, places India among the most heavily taxed countries in U.S. trade. Economists warn that the move could affect millions of jobs in export-linked industries such as textiles, gems, and seafood.
Prime Minister Narendra Modi, in his Independence Day address from the Red Fort, responded with a call for self-reliance. “We should become self-reliant, not out of desperation, but out of pride,” he said, urging small businesses to promote “Made in India” products. The Prime Minister has reiterated this message in several public forums since, with officials describing it as part of a broader strategy to counteract external shocks.
Alongside appeals for swadeshi, the government is preparing a major fiscal intervention. After a $12 billion income tax reduction announced earlier this year, the Finance Ministry is working on a simplified two-rate Goods and Services Tax (GST) structure. The move is intended to ease compliance and reduce costs for businesses, while putting more disposable income in the hands of consumers.
Analysts see the combined effect of income tax relief and GST reform as potentially significant. U.S. brokerage Jeffries estimates that the measures, together worth about $20 billion, could deliver a “meaningful push to consumption,” which accounts for nearly 60% of India’s GDP.
Private consumption has been under pressure, particularly in urban centres where job losses in information technology and services have dampened demand. However, rural spending has held up, aided by a favourable harvest.
Investment bank Morgan Stanley has said that the proposed fiscal measures will be crucial in sustaining growth at a time when global trade tensions and tariff hikes threaten external demand. Swiss investment bank UBS noted that GST cuts could have a stronger multiplier effect than earlier corporate or income tax reductions, as they directly influence consumer spending at the point of purchase.
Sectors most likely to benefit include two-wheelers, small cars, garments, and construction-related goods such as cement, all of which typically see an uptick in demand during the festive season.
Officials believe that the expected revenue loss from GST simplification will be offset by higher-than-expected tax collections and larger dividend transfers from the Reserve Bank of India.
As India confronts one of its sharpest external trade shocks in recent years, the government is counting on a mix of tax reform and domestic demand revival to provide a buffer.
