MUMBAI: Indian Prime Minister Narendra Modi’s push to slash consumption taxes on everyday goods could deliver billions of dollars in annual relief and boost demand in an economy bracing for painful US tariffs, experts say.
US President Donald Trump has threatened to double import duties on India from 25 to 50 percent to punish New Delhi for buying oil from Russia, saying the purchases help Moscow fund its invasion of Ukraine.
The prospective measure has clouded the outlook for the world’s fifth-largest economy, with Indian exporters warning of plunging orders and severe job losses.
New Delhi has called Washington’s move “unfair, unjustified and unreasonable” but is already seeking to cushion the blow, with Modi last week promising to “bring down the tax burden on the common man” during an annual speech to mark India’s independence.
His proposed cuts to the goods and services tax (GST) would make everything from small cars to air conditioners cheaper for consumers, economists say.
Currently, the tax operates under a complex four-tier structure, with rates ranging from five to 28 percent.
Under Modi’s reforms, most goods would fall into just two tiers, taxed at either five or 18 percent.
The Indian leader has called the change a “Diwali gift,” a reference to the annual Hindu festival of lights when consumers splurge on everything from gold and clothes to consumer electronics.
Trump’s tariffs – and their impact on ordinary Indians – will hinge on how much progress is made toward a Russia-Ukraine peace deal, and whether New Delhi can secure alternative oil suppliers before the US president’s August 27 deadline.
But experts say Modi’s tax reform could help shore up demand by reducing tax collections by between $13 billion and $17 billion.
Analysts at Emkay Global Financial Services called the policy a “welcome reform toward boosting domestic consumption.”
They estimated that about the vast majority of items currently subject to the top 28 percent rate would be taxed at 18 percent, while “nearly all” in the 12 percent tier would move into the five-percent bracket.
Analysts at Motilal Oswal, an Indian financial services firm, said the changes would bring benefits to a wide range of sectors and “sizeable savings” to households.
The fate of the proposal ultimately rests with the GST Council, which includes representatives from state governments and has struggled to achieve broad consensus in the past.
If approved, the cuts would strain public finances, according to experts.
However, they said, they could also help to offset tariff risks and burnish Modi’s credentials among the middle class.
The proposal comes ahead of expected elections later this year in Bihar, a large, Hindu-majority state of 130 million people that is a key political battleground for Modi.
“The popular economic narrative right now is that of Trump’s 50 percent tariffs and how the US-India relationship is seeing setbacks,” Deepanshu Mohan, economist at O.P. Jindal Global University, said.
“The GST readjustment is a strong response from Modi in that context. It’s Modi telling the middle class: ‘We are trying to make sure you have enough at your end,’” Mohan said.
But, he added, it was also an acknowledgement that India’s economy had not worked for its “low middle-income class for some time.”
Although economists have called for an overhaul of the GST system for years, Modi’s surprise announcement comes as US-India ties hit a multi-decade low.
Economists estimate that if the two countries fail to sign a trade deal, Trump’s tariffs could drag India’s GDP growth below six percent this fiscal year, lower than the central bank’s projections of 6.5 percent.
New Delhi’s stance on Russian oil imports will become clearer by late September as most cargoes this month were contracted before Trump’s threats, according to trade intelligence firm Kpler.
Kpler analyst Sumit Ritolia said that while Indian refiners are showing “growing interest” in US, West African and Latin American crude, it was more indicative of “greater flexibility, not a deliberate pivot.”
“Until there’s a clear policy shift or sustained change in trade economics, Russian flows remain a core part of India’s crude basket,” Ritolia said.
As the clock ticks down on the tariff hike, the state of US-India trade negotiations remains uncertain.
New Delhi says it is committed to striking a deal, but Indian media reports suggest US negotiators have postponed a planned late-August visit to the Indian capital.
India’s Modi dangles tax cuts as US tariffs loom
https://arab.news/rgzn4
India’s Modi dangles tax cuts as US tariffs loom
- Proposed cuts to the goods and services tax to make everything from small cars to air conditioners cheaper for consumers, economists say
- As the clock ticks down on the tariff hike, the state of US-India trade negotiations remains uncertain
New deadly clashes break out on Afghanistan-Pakistan border despite truce
- At least 5 people were killed, 5 injured on the Afghan side, Taliban authorities say
- Latest clash comes amid reports of back-channel negotiations between the two countries
KABUL: Overnight border clashes have broken out between Afghan and Pakistani forces, authorities in Afghanistan said on Saturday, as tensions between the neighbors escalated following a fragile ceasefire.
The latest exchange of fire that spanned Spin Boldak and Chaman, a key crossing between southeastern Afghanistan’s Kandahar province and Pakistan’s Balochistan, marked violations of a ceasefire that has been in place since October.
The truce brokered by Qatar and Turkey has mostly held for the past two months, after dozens were killed on both sides in what was the deadliest confrontation in years between Afghanistan and Pakistan.
But heavy gunfire and shelling erupted again late on Friday, with each side blaming the other for sparking the deadly violence.
“Unfortunately, last night the Pakistani side once again attacked Spin Boldak in Kandahar. The forces of the Islamic Emirate had to respond,” Hamdullah Fitrat, deputy spokesperson of Afghanistan’s Taliban government, told Arab News on Saturday.
He said five people on the Afghan side — including four civilians — were killed in the violence, while five others were injured.
Mosharraf Zaidi, spokesman for Pakistan’s prime minister, said that the Taliban “resorted to unprovoked firing” along their shared border.
“An immediate, befitting & intense response has been given by our armed forces. Pakistan remains fully alert & committed to ensuring its territorial integrity & the safety of our citizens,” he wrote on X.
Local residents in Spin Boldak told Arab News that Friday’s clashes forced families to flee their homes.
“Mortars and bullets smashed into houses and public places,” Samiullah Malang said. “It was difficult … (to) watch women and children flee on motorbikes, tractors and on foot in the cold night.”
Although the fighting largely subsided around midnight, sporadic gunfire continued into the morning, he added.
The overnight violence also reached the Friendship Gate, an official crossing point between Spin Boldak and Chaman, which was closed by Pakistan authorities after the fighting.
Clashes at the border have led to repeated closures of the key border crossing, devastating commerce and disrupting the movement of thousands.
“Every time Pakistan shuts the gate, our fruits rot inside the trucks,” said Afghan businessman Haji Rahmatullah. “Hotels are filled with patients waiting to cross for treatment.”
After the ceasefire agreement in October, subsequent talks for a long-term truce have so far yielded little progress. The latest deadly exchange of fire comes amid reports of back-channel negotiations between Afghan and Pakistani officials, which neither governments have openly confirmed.
Both sides remain deeply divided on core security issues and repeated clashes highlight the absence of an effective de-escalation mechanism, according to Asad Waheedi, a political analyst based in Kabul.
“The talks are not bearing fruit because the demands are unrealistic,” he said. “Pakistan asks the Taliban to guarantee the security of their country. This is impossible. Even when America had all its troops here, it could not guarantee Afghanistan’s security. The Taliban have no presence there (in Pakistan). It is an impractical demand.”
Clashes between Afghan and Pakistani forces along the Durand Line — their 2,640-km border — have occurred for decades but intensified after the Taliban took control of Afghanistan in 2021, following the withdrawal of US-led troops.
Pakistan accuses the Afghan Taliban of sheltering fighters from the banned Tehreek-e-Taliban Pakistan and allowing them to stage cross-border attacks — a charge Afghanistan denies, saying it does not allow its territory to be used against other countries.
The deadly violence in October was triggered by an unclaimed explosion in Kabul and another in the southeastern province of Paktika, for which the Afghan government blamed the Pakistani military.
“The facts show that the distance between them is huge,” Waheedi said. “Until the demands become practical, these talks will go nowhere, and the fighting will continue.”
