Modi seizes on tariffs to cut taxes, red tape

Move catches India’s officials by surprise

- RUCHI BHATIA SHRUTI SRIVASTAVA

When Indian Prime Minister Narendra Modi stood on the ramparts of the 17th century Red Fort in New Delhi and announced a cut to consumption taxes, he took many of his own officials by surprise.

For the past year, bureaucrats had made steady progress in talks to overhaul the country’s complex goods and services tax, but they were still several months away from making an announcement, an official in New Delhi involved in the discussions said. State finance ministers, who will need to manage the bulk of the revenue losses from the tax cuts, say they weren’t consulted beforehand. The officials asked not to be identified in order to discuss internal matters.

With India bracing for 50% tariffs on its exports to the US from today, Mr Modi's government is speeding up policy changes such as the GST overhaul to shore up confidence and growth in the economy. US President Donald Trump's tariff warnings since July have sparked renewed momentum in New Delhi to tackle some of the tricky reforms businesses and economists have long argued are holding back investment.

“Your usual policy levers are not going to work very well in the current environment,” said Dhiraj Nim, an economist at Australia & New Zealand Banking Group Ltd. “So, the only way outis for you to undertake those slightly tougher reforms”

Aside from the GST changes — a combination of lower tax rates and simplified rules — Mr Modi also spoke in his Aug 15 Independence Day speech about “next-generation reforms,” including policy changes to reduce compliance costs for firms and abolish redundant laws.

India’s complicated tax system and bureaucratic red tape has given the country a reputation as a difficult place to do business. Layers of

permits, overlapping regulations, and slow-moving approvals have frustrated businesses and stalled major projects, deterring investors who might otherwise fuel growth.

‘ROOM TO PUSH REFORMS’