Modi’s tax reform boosts India’s domestic demand – Bloomberg

Retail sales during India’s biggest festival, Diwali, celebrated in October, were over $67 billion

India’s recent consumption tax cuts led to a surge in spending during Diwali, the country’s biggest festival, Bloomberg reported on Monday, citing data from retail intelligence platform Bizom.

Consumer spending from September 22 to October 21 increased by 8.5% compared to the same period last year. The report said total retail sales reached $67.6 billion, with top-performing categories including jewelry, electronics, clothing, home furnishings, and sweets.

The substantial growth in demand is attributed to the recent tax reform the Indian government announced in September in an effort to cushion the economy from US President Donald Trump’s 50% tariffs. 

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New Delhi reduced the Goods and Services Tax on nearly 400 product categories, marking the nation’s first major tax cut in almost a decade. Taxes were effectively slashed on most household items, spurring spending ahead of the festival season.

The tax reduction immediately led to increased demand for vehicles, with major automakers such as Maruti Suzuki, Tata Motors, and Mahindra & Mahindra reporting strong sales growth. Tata Motors delivered over 100,000 cars, while M&M saw a 27% increase in tractor sales, driven by a good monsoon and the tax cut, the Bloomberg report added.

Economists, however, are advising caution in interpreting the recent spending surge as some of the increase in spending may be due to pent-up demand.

The Indian central bank revised the GDP growth forecast for the current financial year up to 6.8% from earlier estimate of 6.5%, after GDP for the first quarter increased 7.8%, up from 7.4% in the previous quarter, the fastest pace in seven quarters, led by strong investment and consumption.