Modi Announces GST Cuts and New Defence System Amid U.S. Trade Tensions
New Delhi: Facing growing pressure from U.S. tariffs that threaten India’s exports, Prime Minister Narendra Modi announced a reduction in goods and services taxes (GST) starting this October, a move aimed at boosting domestic consumption.
Modi also revealed plans for a new defence system, named ‘Sudarshan Chakra’, in the wake of India’s brief four-day military clash with Pakistan in May. While details were scarce, a government statement said the system is designed to prevent enemy infiltrations and strengthen India’s offensive capabilities. Sources in defence circles noted that the system could be linked to the Russian S-400 air defence technology, which played a key role during the recent conflict.
Delivering his annual Independence Day address from the Red Fort, Modi focused on domestic priorities rather than international trade disputes. “Farmers, fishermen, and cattle rearers are our top priorities,” he said. “India will never compromise when it comes to protecting their interests.”
The speech came days after U.S. President Donald Trump imposed an additional 25% tariff on Indian goods, citing India’s continued imports of Russian oil. The move raised duties on some exports to as high as 50%, making them among the steepest levies imposed on any U.S. trading partner. Modi did not directly mention the tariffs or the U.S., though he has previously vowed to protect farmers’ interests even at personal political cost.
Boosting Consumption Through Tax Cuts
Modi’s GST announcement comes as part of a broader push for local manufacturing and self-reliance, accelerated by global trade disruptions and supply chain challenges. “The need of the hour is to take a resolve for building a strong India… I want our traders and shopkeepers to display boards for ‘Swadeshi’ products,” he said, referring to goods made in India.
The government also plans to roll out domestically produced semiconductor chips by the end of this year and is exploring more than 1,200 sites for critical minerals to strengthen self-reliance.
India’s exports to the U.S., which totaled nearly $87 billion in 2024, are at risk due to tariffs, affecting sectors like textiles, footwear, shrimp, and gems and jewellery. In response, some Modi supporters have called for boycotts of U.S. companies such as McDonald’s, Coca-Cola, Amazon, and Apple.
Trade negotiations between New Delhi and Washington have stalled, primarily over disagreements on opening India’s farm and dairy sectors and curbing Russian oil imports.
Simplifying Taxes
Modi’s GST cuts coincide with the upcoming Diwali festival, one of India’s largest shopping seasons. The government is considering merging tax slabs and reducing rates on mass-use items, as well as goods used by women, students, and farmers, according to a finance ministry post on X.
The move aims to simplify GST into two main rates—standard and merit—while keeping special rates for a limited number of products. Earlier this year, personal income tax was also reduced for some individuals to encourage spending, and the central bank recently maintained interest rates after earlier cuts totaling 100 basis points.
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