US tightens taxes, India "pivots" to domestic market

VTV.vn - Escalating tariffs and visa fees put pressure, New Delhi bets on domestic consumption and calls for prioritizing domestically produced goods.

India amid tariff tensions and global volatility

In the context of tariffs and trade fluctuations that are causing many disturbances to the global economy , India - the 5th largest economy in the world - is one of the countries at the center. Among the US's trading partners, India is one of the countries that is subject to the highest tariffs and is also sensitive to other changes in US policy.

Since late August, tariffs on Indian goods have been raised to 50%. Negotiations over many months with 5 rounds of trade talks are still deadlocked in reaching a bilateral agreement between the two countries. It is estimated that the current tariffs could cause damage of 0.3 - 0.5% of India's GDP.

Most recently, the US increased the fee for new H1B visas to $100,000. India is currently the country that benefits the most from this high-skilled visa, accounting for more than 71% of the total number of foreign workers granted visas. Therefore, the fee increase is expected to have a significant impact on economic activities related to this labor force, such as remittances or Indian technology businesses operating in the US market.

However, amid numerous external challenges, New Delhi seems to have found a new driving force for its economy - its domestic market of more than 1.4 billion people. And the country has just launched a number of strong policies to exploit this advantage.

An automobile assembly plant in India. Photo: Livemint

India stimulates domestic consumption

Under the new plan, which took effect on September 22, India has reduced its Goods and Services Tax (GST) system from four tax rates to just two: 5% and 18%. Many essential items such as food, medicine, etc. are exempt from tax, while popular items such as shampoo and soap have their tax rates reduced from 12-18% to 5%.

Mr. Jatin Bhalla - Grocery store owner said: "The goods and services tax has been reduced from 18% to 5%, which means a reduction of more than 10% in the value of the product. If you buy a loaf of bread for 50 rupees, you can save 5-6 rupees. If you buy many similar products in a month, the savings can be up to thousands of rupees."

For more expensive items such as small cars, televisions and air conditioners, consumption tax was also significantly reduced from 28% to 18% to boost consumption.

"There are many products that cater to the aspirations of the middle class. Air conditioners, TVs above 32 inches. All TVs are currently at 18% tax. Dishwashers, small cars, motorbikes with an engine capacity of 350cc or less are also subject to 18% tax," said Nirmala Sitharaman, India's Finance Minister.

In addition to encouraging consumers to spend more to boost economic growth, the Indian government is also trying to direct this spending towards domestic brands. Indian Prime Minister Narendra Modi recently called on people to prioritize buying domestic products, while shopkeepers focused on selling products made in India.

Indian Prime Minister Narendra Modi emphasized: "We are using a lot of foreign imported goods in our daily lives, whether intentionally or unintentionally, even very small things like a comb. Let's give them up and switch to goods made in India."

Policies to stimulate the domestic market are not only considered a temporary solution when global trade is volatile. Indian officials are placing high hopes that this will be a boost for the domestic market to become the main driving force, raising the level of manufacturing and technology of this billion-people country in the future.

Potential from the Indian market

India is home to 1.4 billion people, of which the middle class – a group with purchasing power and willingness to spend on products and services beyond basic living needs – is estimated by some estimates to be around 400 million people and is still expanding. This group plays an important role in India's domestic consumption and economic growth.

S&P Global recently predicted that this strong domestic demand will help partially offset the negative impact of US tariffs.

The global credit rating agency has kept India's growth forecast for FY2026 unchanged at 6.5%, while projecting 6.7% growth for FY2027.

Expectations of Indian businesses and consumers

In fact, India’s consumer sentiment has picked up since the tax cuts were announced, with many consumers showing enthusiasm, while retailers have seen a surge in customers asking for new prices on products with reduced tax rates.

Ms. Joyce Pinto - Indian consumer shared: "We are ordinary people, our income is not high. Therefore, tax reduction will be very helpful for us."

"Consumers are very satisfied with this result. Moreover, with the offers given to customers during the festival, they will be able to save more when buying a car," said Hardik Parmar, representative of Volkswagen branch in Mumbai.

"Air conditioners and LED lights are currently the products that many consumers are interested in learning about and asking to buy," said Mr. Karan Dua - Owner of an electronics store.

International businesses strive to penetrate the Indian market

Mumbai city from above. (Photo: The Wall Street Journal)

Not only are domestic Indian companies waiting for a boost from the domestic market, but global companies are also certainly not missing out on the opportunity. These corporations are trying to find ways to attract the huge customer base in this country, especially the young group.

Tech giants are leading the way in entering the Indian market. Google and Meta have joined hands with billionaire Mukesh Ambani’s Reliance in recent years, helping them penetrate a range of areas such as 5G networks, smart devices and most recently, artificial intelligence (AI).

Microsoft also announced a $3 billion investment in data centers and AI in India earlier this year, while OpenAI launched a super-cheap ChatGPT subscription plan specifically for this market.

Another exciting sector is e-commerce, with Amazon and Flipkart, a platform owned by Walmart, racing to expand. Amazon has announced plans to invest $30 billion in its logistics network in India by 2030.

Although it has only recently opened its doors to foreign companies, the Indian electric vehicle market has already attracted major brands: Tesla opened two official dealerships this year, while BYD launched a series of low-priced models to suit local tastes.

Source: https://vtv.vn/my-siet-thue-an-do-xoay-truc-ve-thi-truong-noi-dia-10025092511412667.htm