Boosting consumer demand in India through reduced taxes on everyday necessities, as a countermeasure to US tariffs impact.

Indian Finance Minister Nirmala Sitharaman announced cuts to the goods and services tax (GST) on Wednesday, a move expected to bring about a significant boost in consumption and benefit various sectors of the economy.

The GST panel simplified the tax structure from four rates to a two-rate structure of 5% and 18%. This includes a reduction in taxes on consumer items such as toothpaste and shampoo from 18% to 5%, as well as a reduction in taxes on small cars, air conditioners, and televisions from 28% to 18%.

The decision is expected to have a positive impact on the Indian economy, with companies in fast-moving consumer goods and consumer electronics like Hindustan Unilever, Godrej Industries, Samsung Electronics, LG Electronics, and Sony likely to benefit. The move is also expected to boost sales of these companies, providing a much-needed boost to the industry.

Automakers such as Maruti, Toyota Motor, and Suzuki Motor are expected to be big winners due to the GST rate cuts. The reduced taxes on small cars are expected to encourage more sales, helping to stimulate the automotive sector.

The Indian economy is expected to experience a boost in consumption due to the GST rate cuts. The consumption boost in lieu of the GST rate rationalisation is expected to more than neutralise any possible revenue impact, according to Soumya Kanti Ghosh, chief economist at SBI.

The impact on fiscal deficit due to the GST rate cuts is expected to be almost insignificant or even positive, according to Ghosh. The federal and state governments are estimated to lose 480 billion Indian rupees ($5.49 billion) due to the cuts, but the increased consumption is expected to offset this loss.

Prime Minister Narendra Modi's call for greater self-reliance in India triggered the rush to cut the tax. Modi vowed last month to lower the GST by October to counter the US tariffs of up to 50%. After the tax cuts announced on Wednesday, Modi said the wide-ranging reforms will improve the lives of citizens and ensure ease of doing business for all, especially small traders and businesses.

The panel also approved a tax of 40% on "super luxury" and "sin" goods such as cigarettes, cars with engine capacity exceeding 1,500 cubic centimetres, and carbonated beverages. This move is intended to discourage the consumption of these products and promote a healthier lifestyle.

The GST will be removed from all individual life insurance policies and health insurance, a move that is expected to provide relief to policyholders and encourage more people to invest in these essential services.

In conclusion, the GST rate cuts are expected to provide a much-needed boost to the Indian economy, with increased consumption and improved business prospects for various sectors. The simplified tax structure and reduced taxes on everyday products are expected to benefit consumers and businesses alike, while the increased consumption is expected to offset any potential loss in revenue for the federal and state governments. The removal of GST from life insurance and health insurance policies is also expected to provide relief to policyholders and encourage more people to invest in these essential services.