Prime Minister Modi's recent tax cut initiatives are poised to inject significant momentum into India's festive spending season. Effective September 22, 2025, the new Goods and Services Tax (GST) reforms, dubbed a "savings festival" by Modi, are designed to boost savings and make goods more affordable for a wide range of consumers. These reforms, coupled with income tax changes announced earlier in the year, are projected to save Indians ₹2.5 lakh crore.
The GST reforms streamline the tax structure, reducing the number of tax slabs to two primary rates: 5% and 18%. Essential items, medicines, and household appliances will see significant price reductions as a result of these changes. Many food items, including roti, paratha, paneer, and khakra, have been moved to the 0% tax bracket. While most items under GST have seen rate cuts, some limited items will now also be dearer with higher tax rates, such as clothes priced above Rs 2,500, which will now attract a higher GST rate of 18% compared to 12% before.
These changes are expected to have a widespread positive impact, particularly benefiting the middle class, small businesses, and entrepreneurs. The reduced GST rates and simplified procedures will significantly benefit Micro, Small, and Medium Enterprises (MSMEs), especially small-scale and cottage enterprises. With lower taxes and easier compliance, these businesses can focus on growth, jobs, and innovation.
The tax revisions arrive at a crucial time, coinciding with the Navratri festival and the broader festive season, when Indian consumers traditionally increase their spending. The government hopes this surge in demand will offset some of the impact of US tariffs on Indian merchandise exports.
Beyond the immediate boost to spending, these tax cuts are part of a broader strategy to stimulate economic growth and improve the financial well-being of Indian citizens. The government's focus on long-term growth potential is evident in its efforts to build a robust and deep consumption class through personal income tax cuts, increased rural income via agricultural productivity growth, and improved access to credit for self-employment.
The India Economic Outlook survey for 2025 reflects cautious optimism, expecting consumer spending to gain momentum, driven by an improved outlook for the agriculture sector, which is likely to bolster rural consumption and sentiment. Easing inflation and proactive monetary policy are expected to further fuel consumption spending. The Reserve Bank of India (RBI) has implemented a 100-basis-point rate cut over three consecutive policy meetings, aiming to drive credit growth and boost both investment and consumer spending.
Notably, fashion and apparel are expected to be key beneficiaries of festive spending in 2025. A recent report indicates that 72% of urban consumers intend to increase their festive spending this year, with nearly one in three planning to spend more than 50% above their usual outlay. Fashion and apparel account for 39% of consumer intent, second only to electronics and home appliances.
Overall, the Indian economy demonstrates resilience, with GDP growth at 6.5% in fiscal year 2025, and an expected growth between 6.4% and 6.7% in fiscal year 2025-26. Robust domestic investor participation and a resurgence in Foreign Portfolio Investment (FPI) flows have positioned India as a long-term investment destination. Domestic consumption remains strong, accounting for over 61% of India's GDP in FY25.
