Indian Prime Minister Narendra Modi is laying the groundwork, too, increasing manufacturing from domestic providers and spurring consumer demand. As the country has been approaching new economic challenges, most notably in the form of a 50% tariff rate to be imposed by the United States on August 27th. This trade action stands as a significant roadblock for India. The country has been trying to raise its manufacturing sector while suffering from lackluster growth.
Over the years, Modi’s government has rolled out a blitzkrieg of subsidies and production incentives to increase manufacturing. The share of manufacturing in India’s gross domestic product (GDP) has flat-lined at about 15%. Despite these efforts, India’s growth prospects have decreased significantly from the 8% levels seen a few years ago. Moreover, the country still has to deal with an external crisis which isn’t abating anytime soon.
The Trump administration’s tariffs serve as a de facto trade sanction. All of which has troubling implications for the relationship between two of the world’s largest and fastest-growing economies. Modi has encouraged small businesses and shopkeepers to hang “Made in India” signs outside their stores to advertise their allegiance. This call further strengthens his powerful imperative of independence.
We need to be self-sufficient – not because we’re forced to be, but because we want to be proud of the things we produce. One of the original architects of Make in India, Modi made this argument for national pride in both manufacturing and consumption. He pointed out a promise to deliver a “massive tax bonanza” for everyday folks and small business owners as well.
To advance this objective, India’s finance ministry has proposed a simplified two-tier Goods and Services Tax (GST) system. According to analysts from Jefferies, these GST reforms (estimated to be $20 billion) will add 1.7% to consumer spending in India. Compounding this effect is an income tax cut set to begin in April 2025.
Private consumption is the beating heart of India’s economy. It makes up almost 60% of India’s GDP. Looking ahead, the proposed tax cuts will disproportionately favor a few sectors. Industries that are consumer-facing, such as scooters, small cars, garments, and cement, stand to benefit the most.
As Modi pushes for more domestic consumption too – an essential ingredient for any economic superpower – he must keep India’s growth momentum strong. Early next year, some 500,000 public workers will get substantial raises. This is a great place to start with an increase that will help overall toward our goal.
“Combined with the income tax cut… the GST rate reforms should together provide a meaningful push to consumption,” analysts from Jeffries noted. This sentiment captures the mood nationally, where the conversation has shifted to jumpstarting economic activity with highly focused financial incentives.