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Tariff Woes, GST Hope?
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Good Morning. Reforming the Goods and Services Tax (GST) was among the major announcements made during Prime Minister Narendra Modi's speech on India's Independence Day. While the move may bring short-term benefits to consumers, it is also a step towards managing India's external battles — tariffs. How will it pan out? We spoke to Prashanth Agarwal, partner, indirect tax at PWC and Rohit Jain, deputy managing partner at law firm Economic Laws Practice, to find out.
In other news, Donald Trump’s trade adviser warns India against buying Russian crude. Meanwhile, Putin dials Modi.
CORE CONVERSATIONS
GST Overhaul Aims to Lift Spending, Cushion Trade Shocks
What?
Since its introduction, the GST has faced much criticism. The ‘reform-friendly’ tax system, which has been in place for a decade, has faced backlash for its confusing classifications, leading to disputes from chartered accountants, the country’s opposition party, and the general public.
The prime minister has now paved the way for rationalisation of slabs, which might have short-term impact on the exchequer but will ease the common man’s burden.
While there might be a short-term hit to the tune of Rs 40,000 to 50,000 crore to collections, the corresponding rise in consumption can more than make up for it. Building the domestic story can also help the country handle the impending tariff shocks.
“It's a mini stimulus to the economy to help it really up in terms of the consumption start of the story,” said Prashanth Agarwal, partner, indirect tax at PWC.
Why?
After appeasing the middle class by removing income tax for those earning Rs 12 lakh per annum, Modi is easing the burden for the common man by reducing the indirect tax burden.
It also comes at a time when Bihar is set to go to polls soon.
With only 5% and 18% slabs, classification will be easier — essentials on the lower end and non-essentials at the higher end. Of course, there is a 40% slab for sin goods that the government doesn’t want you to buy but does sell.
The move is also perhaps to address India’s external battles, the biggest one currently being the tariffs imposed by the US.
“If we improve our internal consumption story, 1.4 billion people to service, we will not have that much export dependability for our economic growth. Another important thing is a reduced import dependability as well, because today, gradually imports have been going down,” said Rohit Jain deputy managing partner at law firm Economic Laws Practice.
Agarwal and Jain also spoke about what India has achieved with GST so far and what could be the potential future with changes on the cards.
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CORE NUMBER
13.04 crore
That’s the number of inactive bank accounts under the PM Jan Dhan Yojana (PMJDY). That’s 23% of the 56.04 crore bank accounts that the PM Modi-led government opened as a part of their PM Jan Dhan Yojana scheme, launched in August 2014. Minister of state for finance Pankaj Chaudhary said in the Lok Sabha that the government has begun a gram panchayat-level saturation campaign to re-KYC these inactive bank accounts and trace their owners.
📈 State-wise distribution of inoperative bank accounts:
Uttar Pradesh: 2.75 crore
Bihar: 1.39 crore
Madhya Pradesh: 1.07 crore
Previously, a World Bank report titled ‘Global Findex 2025’ found that over a third of the total bank accounts in India are inactive – that’s much higher compared to other developing economies. Though the government touted the PMJDY as the solution to the financial woes of Indians, many practical issues came up in its implementation. As The Core previously reported, many rural women don’t own smartphones, which was a major roadblock to this scheme on the ground.
FROM THE PERIPHERY
Putin Dials Modi
Prime Minister Narendra Modi on Monday said in a post on X that Russian president Vladimir Putin spoke to him over the phone. "Thank my friend, President Putin, for his phone call and for sharing insights on his recent meeting with President Trump in Alaska," Modi said.
The Context: This comes days after Putin met Trump in Alaska. While no deal was announced between the two leaders, it was viewed as a positive step between the two countries. The meeting is crucial for India as Trump has imposed tariffs on India for continuing to buy Russian crude. A deal between Russia and the US could benefit India.
What Next? In his post, Modi also said that India “has consistently called for a peaceful resolution of the Ukraine conflict and supports all efforts in this regard.” After his meeting with Putin, Trump said that while many points had been agreed to, some were left.
US Trade Adviser Takes Dig at India
White House trade adviser Peter Navarro wrote an op-ed in the Financial Times arguing that India should stop buying Russian oil because it funds “Putin’s war machine”. He further criticised India’s high tariffs and wrote that if India wants to be US’s ally, it should “start acting like one.”
How We Got Here: Navarro’s op-ed comes at a tense time in the India-US relationship. In early August, US President Trump imposed a 50% tariff on most Indian exports to the US, citing India’s purchase of Russian oil. In his annual Independence Day address, Indian PM Modi said he would protect India’s farmers at all costs.
The Turning Point: The Indian government has not given officials directions related to Russian oil, but Indian refiners have delayed proceeding with orders. At the same time, executives warn against a hasty shift away from Russian oil because it could reduce global oil supply and disrupt global markets.
Things To Get Cheaper?
From small cars to air conditioners, consumers could soon see prices fall as the government moves to simplify GST, The Economic Times reported. Prices for textiles, farm machinery, auto components, FMCG and insurance could also be reduced.
By the Numbers: According to the report, daily essentials would likely have no taxes, for small cars and ACs, taxes could drop from 28% to 18%, televisions from 28% to 18%, and insurance premiums from 18% to 5% or even nil.
What's Next? Finance minister Nirmala Sitharaman will pitch the reform to state ministers this week, the report added. Beyond household savings, the shift is expected to lift demand, jobs, and India’s export competitiveness.
Unemployment Rate Eases
India’s unemployment rate dropped to 5.2% in July 2025 from 5.6% a month earlier, the Ministry of Statistics and Programme Implementation said in its latest Periodic Labour Force Survey.
Backstory: India has recently started to publish monthly unemployment data. While outwardly, the drop in unemployment seems like good news, last month, experts Reuters spoke to questioned this data. A Reuters poll of independent economists in July said official figures understate the scale of joblessness, estimating the real rate could be about double. Despite 7.4% GDP growth in January–March, India is struggling to create enough well-paying jobs.
Flashpoint: The Labour Force Participation Rate among those aged 15 years and above rose to 54.9% in July from 54.2% in June, with the rural areas' Labour Force Participation Rate (LFPR) at 56.9% and urban areas at 50.7%, the government said.
PODCASTS
How A Combo Tax Package Is Keeping The Markets Happy
On Episode 657 of The Core Report, financial journalist Govindraj Ethiraj talks to Anshuman Magazine - Chairman & CEO, India, SEA, MEA, CBRE as well as Paul Hickin, Chief Economist and Editor-in-Chief Petroleum Economist.
How a combo tax package is keeping the markets happy
Corporate earnings on Wall Street continue to surprise
US trade advisor Peter Navarro wants India to stop acting as a clearing house for Russian oil
Commercial real estate is on a roll, what’s driving it?
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