Prime Minister Modi’s fiscal reductions may inject a celebratory shopping surge into the Indian economy.

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Starting Monday, the daily economic burdens of millions of Indians could ease slightly.

Staples like milk and bread, life and medical insurance, and life-saving drugs will become tax-free. Consumption tax on small cars, television sets, and air conditioners will drop from 28% to 18%. And other common goods like hair oil, toilet soap, and shampoo will be taxed at a marginal 5% instead of 12% or 18%.

The sweeping cuts are part of Prime Minister Narendra Modi’s major overhaul of India’s complex goods and services tax (GST) regime announced earlier this month.

This is expected to both simplify the tax code and give flagging household consumption – which makes up over half of India’s gross domestic product (GDP) – a much-needed fillip.

The timing couldn’t be more opportune.

Lower GST rates coincide with the beginning of a long festive season when Indians typically open their purse strings to buy everything from new cars to clothes.

This four-month period also brings in a bulk of yearly sales for consumer goods companies such as packaged food makers and apparel manufacturers.

The hope is reduced taxes will mitigate some of the impact of the US’s bruising 50% tariffs on India, leave people with more money to spend, and spruce up the domestic economy.

Vishnu Vardhan

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