Modi gives tax boon to India's economy amid Trump tariff tensions

Indian markets rallied on Monday as Prime Minister Narendra Modi's recently revealed tax cuts extended a gift to a domestic economy that still faces the teeth of U.S. tariffs.

The Nifty 50 index advanced 1%, with the BSE Sensex adding 0.84%. In currencies, the U.S. dollar surrendered 0.18% against the rupee.

In an extensive Independence Day speech on Friday, Prime Minister Narendra Modi made a concerted push for self-reliance and proposed a spate of financial reforms. New Delhi now plans a two-rate structure of 5% and 18% under wide-spanning changes to the goods and services tax (GST) regime, and plans to abolish the previous 12% and 28% levies imposed on some items, Reuters cited a government official as saying on Friday. The news was also reported by local media.

“The reforms aim to simplify compliance, lower tax rates, and modernise the GST framework to make it more growth-oriented. Industry executives expect measures such as rationalising rates into two slabs, easing the tax burden on micro, small and medium enterprises (MSMEs), cutting levies on essential goods, and using technology-driven processes like pre-filled returns and faster refunds to encourage investment,” the India Brand Equity Foundation said, adding that manufacturing, logistics, housing and consumer goods could stand to gain.

India's autos industry could also emerge as one of the beneficiaries of the new tax policies after a sluggish stretch in recent months. Sales of India's passenger vehicles, which include cars, added 4.2% percent in the 2024 calendar year, the Society of Indian Automobile Manufacturers said in January – the slowest growth pace in four years, according to Reuters.

Auto sector stocks saw increases during the Monday session, as Maruti Suzuki India adding 8.75%, while Hyundai Motor India rose by 8.15%.

“I'm certainly positive about the announcement, and the autos sector being a relative laggard in recent quarters, so not surprising to see that sector bounce back quite strongly,” James Thom, senior investment director on the Asian equities team at Aberdeen, told CNBC's “Inside India on Monday.”