Taxation and Trade Policy - Newspaper Summary

 The sources provide extensive detail on India's strategic shifts in Taxation and Trade Policy during October 2025, revealing a landscape focused on boosting domestic consumption, navigating complex international trade tensions, and addressing long-standing regulatory friction.

I. Taxation Policy and the Domestic Economic Landscape

India's recent tax policy moves are primarily aimed at stimulating demand and rationalizing the tax structure, thereby injecting ample liquidity into the economy.

Goods and Services Tax (GST) Reforms and Impact

The key taxation development is the implementation of the Next-Generation GST Reforms 2025, which included the re-calibration of GST rates. These sweeping rate reductions came into effect from September 22. The reform eliminated the 12% and 28% levy rates, reassigning those items mostly downwards to the retained rates of 5% and 18%. Overall, the average rate of levy has been reduced.

Impact on Consumption and Liquidity:

• The reduction in personal income tax and GST rates has resulted in more money in the hands of the common man.
• This tax stimulus is strategically designed to stoke consumption, which accounts for approximately three-fifths of India’s economic output.
• The effects are already appearing in sectors like auto fuel, where consumption of diesel and petrol was higher in September 2025 due to festival season stocking, further boosted by the GST rate cuts. This activity was heightened as stockists booked higher quantities in advance to pass GST benefits on to consumers.
• In the hotel industry, rooms priced below ₹7,500 now attract just 5% GST, down from 12%. However, rooms above that threshold remain at 18%. Hotel owners, however, expressed dissatisfaction because they lose the input tax credit for rooms in the 5% GST category.

Fiscal and Policy Objectives:

• The Finance Ministry is closely tracking collection data, hoping the revenue loss from rate cuts will be offset by a boom in retail sales volumes.
• The current round of reductions is expected to disincentivize evasion. For example, shifting kitchenware and household articles from 12% or 18% down to 5% may cause GST-excluded channels of purchase to vanish.
• The government forecasts that growth is likely to get further support from the impact of the recent GST reforms. RBI Governor Sanjay Malhotra noted that the impact of recent fiscal measures is still playing out.
• Some moves, while humane, will lead to fiscal decline; for instance, shifting 36 life-saving medicines to a zero rate, which is expected to cause revenue to fall because demand for medicines is price inelastic.
• A simplified GST registration scheme is being offered for smaller units, which is expected to finally legitimize transactions between small and big businesses and ease the chokehold of GST on small enterprises.

Regulatory and Consumer Challenges:

• The National Consumer Helpline (NCH) received 3,981 GST-related dockets (comprising 31% queries and 69% grievances) in the first 10 days post-implementation, indicating heightened consumer expectations and widespread confusion about the reforms.
• Many complaints stemmed from misperceptions about which commodities received GST reductions. The Central Consumer Protection Authority (CCPA) is reviewing these grievances.
• In the power sector, the GST rate rationalization increased the GST rate on coal procurement from 5% to 18% while abolishing the compensation cess of ₹400 per tonne. The Central Electricity Regulatory Commission (CERC) has initiated proceedings because these statutory changes constitute a "change in law" event impacting Power Purchase Agreements (PPAs), requiring uniform regulatory direction for tariff adjustments.

II. Trade Policy and Regulatory Friction

India's trade policy discussions are dominated by the need to mitigate external pressures, particularly US tariffs, while addressing regulatory bottlenecks concerning domestic manufacturing and imports.

External Trade Tensions and Tariff Impacts

US Tariffs and Stalled Negotiations:

• Geopolitical tensions and tariff-related developments are cited as risks to growth and are likely to decelerate growth in the second half of FY26 and beyond.
• Hopes for a pickup in exports are fading because the logjam in India-US tariff talks stretches on.
• The sources warn that if the 50% US reciprocal tariff on goods or the threatened tariff on services exports becomes permanent, India could face severe second-order effects on employment, consumption, and growth starting from Q3 FY26. These US tariffs are already hurting units in India's Special Economic Zones (SEZs).
• India and the US are negotiating a bilateral trade agreement for duty cuts, but the talks are difficult; Washington has indicated it would only roll back duties if New Delhi stops sourcing oil from Moscow.
• The Trump administration is also taking a hard line on immigration, increasing H-1B filing fees significantly (from $1,000 to $100,000) for foreign tech workers, which adds to the trade volatility and has caused MNC recruiters to scale back their campus presence in India.

Special Economic Zones (SEZ) Policy Flexibility:

• The Commerce Department is pushing to expedite policy flexibilities for SEZ units, specifically liberalizing rules on Domestic Tariff Area (DTA) sales.
• Allowing SEZ units to sell in the domestic market on a duty foregone basis would make their goods more competitive locally.
• The Revenue Department (Finance Ministry) has expressed concerns that SEZ units, which already enjoy production benefits, might gain an undue edge over domestic producers in the local market.
• The Commerce Department counters this by arguing that increased DTA sales by SEZ units would boost manufacturing for both DTA and SEZ units, provided SEZ units remain Net Foreign Exchange (NFE) positive.

Trade Agreements and Import Concerns

Trade policy is also scrutinizing the outcomes of existing agreements, specifically raising concerns about minimal value addition under the India-UAE CEPA.

Copper Imports via CEPA:

• The Indian Primary Copper Producers Association (IPCPA) raised alarms over the surging copper rod imports from the UAE under the India-UAE Comprehensive Economic Partnership Agreement (CEPA).
• The IPCPA argues that UAE firms merely convert imported copper cathodes into rods with negligible real value addition, yet they benefit from the duty cut (from 2% to 1% in FY25).
• The association criticized the high Tariff Rate Quota (TRQ) of 85,000 tonnes for copper rods and urged the revision of the Product-Specific Rule (PSR) under CEPA to prevent minimally processed goods from entering India duty-free, which they fear undermines the domestic copper industry.

Other Trade Developments:

• In the Asia region, India and ASEAN officials are scheduled to meet to push forward the review of their goods trade pact.
• Globally, the EU plans to hike tariffs on its steel imports to 50% to align with the US rate, intending to push back against overcapacity from China.

Regulatory Environment and Ease of Doing Business

The regulatory landscape is marked by efforts to improve the ease of doing business juxtaposed with specific instances of alleged friction.

Customs Friction (Wintrack Case):

• The Finance Ministry directed the Department of Revenue (DoR) to conduct an inquiry into the allegation of "relentless harassment" and bribery leveled by Wintrack Inc. against Chennai Customs officials. Wintrack announced it would cease import/export activities in India from October 1 due to the alleged harassment.
• While the tax body (CBIC) and Chennai Customs denied the allegations, citing misdeclaration and misclassification by the importer, the government stated it is dealing with the matter with utmost seriousness and is committed to enhancing the ease of doing business.

Regulatory Costs in other Sectors:

• Beyond customs, a study found that fragmented and outdated regulatory systems in the seed sector cost the Indian seed industry over ₹800 crore annually due to friction, redundant testing, and delays. The study recommended implementing a "One Nation, One Licence" system.