(Commonwealth_India) Starting Monday, millions of Indians may experience some relief in their daily expenses. Basic items, such as milk, bread, insurance policies, and essential medicines, will no longer be subject to tax. The cost of small cars, televisions, and air conditioners will also come down as their tax rate drops from 28% to 18%. Everyday goods such as hair oil, soap, and shampoo will be taxed at just 5% instead of the previous 12% or 18%.
These sweeping changes are part of Prime Minister Narendra Modi’s push to simplify India’s complicated goods and services tax system. The move is also expected to give a boost to consumer spending, which makes up more than half of the country’s economy. The timing couldn’t be better—it comes just as the long festive season begins, when families tend to spend more on clothes, appliances, and vehicles. For many businesses, these four months account for a large part of annual sales.
The hope is that lower taxes will help people stretch their money a little further, especially at a time when India is also grappling with the effects of U.S. tariffs. These cuts add to earlier government efforts, such as a $12 billion tax relief package and lower interest rates from the central bank, all aimed at encouraging households to spend more.
Big companies are already moving quickly to pass on the benefits. Automakers, including Mahindra & Mahindra, have seen share prices rise since the announcement. Dealers are reporting more enquiries, and some expect sales to jump by as much as 40% in the coming months. At a Hero Motocorp showroom in Mumbai, the buzz has picked up with first-time buyers showing greater interest in entry-level bikes. One customer, Vishal Pawar, said he’s waiting to time his purchase with festival discounts for maximum savings.
Consumer goods companies are equally hopeful. A senior executive at Godrej Enterprises said the cuts could expand the market for items like air conditioners beyond India’s big cities, especially since this year’s harvest has been excellent. But behind the optimism, there’s also a scramble. Manufacturers are racing to update price labels and balance their production with uncertain demand. Some have even kept both old and new labels side by side to make the savings clear for shoppers.
For smaller retailers, the transition hasn’t been smooth. In Mumbai’s busy Crawford Market, many shopkeepers were either unaware of the changes or unsure how to handle them. A crockery store owner admitted he was still trying to figure out how to account for stock bought before the new rates. At a nearby bridal showroom, there was disappointment. While cheaper clothes now carry lower taxes, wedding outfits—which almost always cost more—are facing higher levies. For sellers like Naresh G, that’s a setback during what is usually a booming season for weddings.
Despite such hiccups, analysts believe the overall effect will be positive. Crisil, a ratings agency, estimates that the new rates will ease costs on about a third of the average household budget, giving the middle class more room to spend. Much depends, however, on how fully companies pass the savings on to consumers.
The flip side is the hit to government revenues. Delhi expects to lose about $5.4 billion this year because of the cuts, though some experts warn the figure could be even higher. At the same time, tax collections have slowed while government spending is rising fast. If revenues remain weak, the government may have to slow down its ambitious infrastructure projects, which have been a key driver of growth in recent years.
