Indian equities surged on Monday as Prime Minister Narendra Modi’s newly unveiled tax reforms delivered a welcome lift to an economy still grappling with the impact of U.S. tariffs.
The Nifty 50 rose 1%, while the BSE Sensex gained 0.84%. In currency markets, the Indian rupee strengthened, with the U.S. dollar slipping 0.18%.
During his Independence Day address on Friday, Prime Minister Modi called for greater self-reliance and outlined sweeping fiscal changes. According to officials cited by Reuters, New Delhi plans to streamline the goods and services tax (GST) into a two-rate system of 5% and 18%, scrapping the previous 12% and 28% brackets.
“The reforms aim to simplify compliance, reduce tax burdens, and modernize the GST system to make it more growth-focused,” the India Brand Equity Foundation said. Key measures include easing levies on essential goods, providing relief for micro, small, and medium-sized enterprises (MSMEs), and adopting technology-driven solutions such as pre-filled tax returns and faster refunds. Sectors expected to benefit include manufacturing, logistics, housing, and consumer goods.
The automotive industry, struggling with sluggish demand, is also poised to gain. Passenger vehicle sales in 2024 grew just 4.2%—the slowest pace in four years, according to the Society of Indian Automobile Manufacturers. Investors welcomed Monday’s news, with Maruti Suzuki India jumping 8.75% and Hyundai Motor India advancing 8.15%.
“I’m certainly positive about the announcement,” said James Thom, senior investment director for Asian equities at Aberdeen, on CNBC. “The autos sector has lagged recently, so the strong rebound is not surprising.”
The reforms could provide crucial support at a time when India faces external pressures. The Reserve Bank of India projects the economy to grow 6.5% in FY2025-26, despite U.S. tariffs that have doubled duties on Indian imports to 50%, in part due to New Delhi’s continued purchases of Russian crude.
“India’s economy is driven primarily by domestic consumption rather than exports,” Thom noted. “This tax overhaul could more than offset the tariff impact, providing a much-needed boost to spending.”
Consumption remains India’s central growth engine, accounting for 61.4% of GDP in FY2024-25, according to Deloitte. The consultancy highlighted urban consumption and growing demand for luxury goods as emerging growth drivers.
India Ratings & Research forecasts private consumption to expand 6.9% annually through FY2026, outpacing overall GDP growth of 6.3%. The agency attributes this to easing inflation, higher access to personal loans, and shifts in household savings patterns.
Retail inflation, meanwhile, has eased sharply—from 4.31% in January to 1.55% in July, the lowest level since 2017—strengthening the outlook for stable consumption growth in the coming fiscal year.