PM Narendra Modi's 12th Independence Speech outlines big aspirational goals as well as a detailed list of structural reforms intended to accelerate progress towards 'Viksit Bharat".
The aspirational goals include plans to launch an Indian space station, a mission to manufacture semiconductor chips in India, expanding the role of nuclear energy tenfold by 2047, manufacturing jet engines in India and raising green energy capacity manifold to reduce dependence on fossil fuels. The PM also announced plans to launch the Sudarshan Chakra mission, India’s version of Israel's Iron Dome anti-missile defence system.
The big structural economic reform is the next generation GST reform announced by the Prime Minister. To be unveiled on Diwali, it involves a reduction of taxes on essential goods, as well as relief to medium and small enterprises (MSMEs) providing a much-needed boost to consumption.
Following up on the PM's announcement, the finance ministry has said there would be a reduction in slabs to 2 and a correction in the inverted duty structure. There would also be an attempt to ease the compliance burden in the administration of GST, the finance ministry has said.
The two GST rates would be 5 percent and 18 percent -- the 28 percent rate would be scrapped-- as per news reports. This is subject to approval by the GST council. Some goods, such as tobacco, would be taxed at a higher rate.
Further, a task force would be set up to come up with the next generation of reforms, which would help accelerate India's progress towards a $10 trillion economy. The PM also pointed to the sustained efforts to reduce compliance burdens and the decriminalisation of violations of various compliance-related provisions.
The Atmanirbhar Imperative
The PM's speech comes in the backdrop of the disorderly remaking of the global economic system by President Trump. India is famously facing a 50 percent tariff, which could come into force in late August unless a trade deal is signed.
Given this situation the concept of Atmanirbharta was rightly the leitmotif of the speech. The PM's call to make semiconductor chips and jet engines must be seen in this perspective.
During Operation Sindoor, ‘Made in India' weapons systems did well. Going forward India's insistence on sourcing weapons systems from countries such as Russia may come under scrutiny, even sanctions. A domestic arms supply chain is thus an imperative.
At a broader level, the Modi government's efforts to create an Indian military-industrial complex are a hugely positive development. Collaboration between the military and the private sector will surely have many desirable spin-offs. The internet was famously born out of the Pentagon's collaboration with American technology companies.
Already, many Indian startups are doing notable work in sectors like drones and as suppliers to ISRO.
The PM's call to speed up deep-sea exploration to find new oil and gas reserves is intended to reduce dependence on oil imports. India was the world's third-largest oil importer, spending $161 billion in 24-25, approximately 23 percent by value of total merchandise imports.
Green Energy, the wider adoption of which could help reduce imports, accounts for 50 percent of total capacity, though only around 20% of generation.
Boosting Consumption
The cut in GST rates is intended to boost consumption, which accounts for close to 60 percent of GDP. Notably, sales of two-wheelers are below 2018-19 levels. Sales of entry-level cars as a category could also revive. Combined with the boost that consumption is already receiving from income taxes below Rs 12 lakh going down to zero, a sharp cut in GST could provide a leg-up to GDP growth.
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