India plans consumption tax cuts by October to strengthen economy

India’s government will slash the consumption tax it charges consumers and businesses by October, a top official said on Friday, hours after Prime Minister Narendra Modi announced sweeping tax reforms to boost the economy in the face of a trade conflict with Washington.

The federal government will propose a two-rate structure of 5% and 18%, doing away with the 12% and 28% tax that was imposed on some items, said the government official, who declined to be named as the plans are still private.

The plan is to bring “99%” of all the items that are in 12% category to 5%, the official said. That tax slab includes butter, fruit juices, and dry fruits, and any cuts to the basket could benefit the likes of Nestle to Hindustan Unilever to Procter & Gamble.

The tax cut plan comes amid growing tensions between New Delhi and Washington on steep US tariffs on Indian goods. Modi on Friday made a public appeal to promote domestic products, and his supporters have been calling for boycott of American products.

Addressing the nation on its 79th independence day, Modi earlier said that the goods and services tax would be reformed and taxes lowered by Diwali, the Hindu festival of lights, set to be celebrated in October this year.

“This Diwali, I am going to make it a double Diwali for you. Over the past eight years, we have undertaken a major reform in goods and services tax. We are bringing next-generation GST reforms that will reduce the tax burden across the country,” Modi said.

The final decision will be taken by the GST (goods and services taxes) Council, which is chaired by the finance minister and has all the state’s finance ministers as members, the official said. The council is set to meet by October.

Citi estimates that about 20% of items - including packaged food and beverages, apparel and hotel accommodation — fall under the 12% GST slab, accounting for 5-10% of consumption and 5-6% of GST revenue.

If most of these are moved to the 5% slab and some to the 18% slab, it could lead to a revenue loss of around 500 billion rupees, or 0.15% of GDP, potentially taking the total policy stimulus for households in the current 2025-26 financial year to 0.6%-0.7% of GDP, the brokerage said.

Separately, ASEAN remains a key trade partner for India, accounting for around 11 per cent of the country’s global trade, the Ministry of Commerce and Industry said on Friday.

Bilateral trade between India and the ten ASEAN member nations reached an impressive USD 123 billion in 2024-25, underscoring the deep economic linkages and the vast potential for future collaboration.

India hosted the 10th Meeting of the ASEAN-India Trade in Goods Agreement (AITIGA) Joint Committee and related meetings at Vanijya Bhawan, New Delhi, from August 10 to 14.

Delegates from all ten ASEAN countries - Brunei, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam - took part in the discussions, which focused on reviewing and modernising the AITIGA.

The meeting aimed to make the agreement more effective, more accessible, and better equipped to facilitate trade in an evolving global economy. Building on the momentum from eight rounds of negotiations already completed, the Joint Committee explored ways to streamline procedures, remove bottlenecks, and align regulations.

The high-level meeting, conducted in a hybrid format, brought together senior officials and trade experts from across the region. Alongside the main sessions, seven of the eight AITIGA Sub-Committees convened to dive deeper into specialised areas, including customs procedures, market access, sanitary and phytosanitary measures, rules of origin, technical standards, legal frameworks, and trade remedies.

According to the Ministry, these targeted meetings allowed for intensive work on complex issues, ensuring that any updates to AITIGA will reflect both technical rigour and the shared vision of member nations. The week-long deliberations reaffirmed the strategic importance of ASEAN-India economic relations and laid the groundwork for more open, predictable, and mutually beneficial trade.

The dialogue will continue when the Joint Committee meets again on October 6-7, 2025, at the ASEAN Secretariat in Jakarta, Indonesia, in a session hosted by Malaysia, the ministry said.

The sessions were co-chaired by Nitin Kumar Yadav, Additional Secretary in India’s Department of Commerce, and Mastura Ahmad Mustafa, Deputy Secretary General (Trade) at Malaysia’s Ministry of Investment, Trade & Industry.

Meanwhile, India and Singapore held a joint working group meeting here to focus on deepening bilateral trade and investment ties, identifying priority sectors for greater alignment, improving logistics and supply chains, streamlining regulatory frameworks, and exploring ways to facilitate cross-border trade according to an official statement issued on Friday.

Agencies