THE GREAT STIMULUS

FROM INCOME TAX CUTS TO THE NEW I-T ACT, AND NOW REFORMS IN THE GOODS AND SERVICES TAX, THE CENTRE HAS IMPLEMENTED A SERIES OF REFORMS OVER THE PAST SIX MONTHS TO PUSH CONSUMPTION. WILL DOMESTIC CONSUMPTION OFFSET THE TARIFF HEADWINDS?

- BY SURABHI

CONSUMERS, ESPECIALLY THE middle class and salaried, have rarely had it so good. For long, they have complained of rising inflation and high taxes and equated monthly instalments (EMIs) eating into their disposable incomes and sought relief from the government. This was mirrored in sluggish growth in consumption demand, the biggest driver of India's gross domestic product (GDP), over the last few years.

Over the past six months, the government has made a concerted effort to turn things around. It began with the FY26 Union Budget, which announced income tax cuts for individuals, followed by 100 basis points of repo rate cuts by the Reserve Bank of India's (RBI's) Monetary Policy Committee, making loans cheaper. It cut rates by 25 basis points each on February 7 and April 9 this year, followed by a 50 basis point cut on June 6, taking the repo rate from 6.5% to 5.5%. The pass through of the reduction to customers has been strong, especially in fresh loans.

Topping those decisions, Prime Minister Narendra Modi announced next-generation reforms in the goods and services tax (GST) from the ramparts of the Red Fort in his Independence Day speech on August 15. Three weeks later, the GST Council approved the rationalisation of the five-rate structure, pruning it to two primary rates of 5% and 18% with a higher 40% rate for ultra luxury and sin goods.

From daily use household items like paneer, ghee, shampoo and toilet soaps to consumer durables like TVs, air conditioners and dishwashers as well as passenger cars, two-wheelers and insurance premia, the council has slashed rates across products.

The changed rates, coming into force on September 22, at the peak of the festive season when demand typically spikes, are expected to add to the demand stimulus announced earlier. It's a nudge, nay, an all-out push to buy and consume more!