Small Businesses and Consumers: The Backbone of Self-Reliant India

 

At the beginning of this month, Prime Minister Narendra Modi made a significant promise that sparked new hope among millions of small business owners, shopkeepers, and entrepreneurs across the country. He hinted at large-scale tax relief for small businesses, calling it a Diwali gift, and emphasized that India's real economic strength lies in its small industries and everyday consumers. Without empowering them, India’s journey towards development remains incomplete.

His announcement on Independence Day from the Red Fort wasn’t just symbolic. He linked it to the Aatmanirbhar Bharat (Self-Reliant India) campaign and urged traders and entrepreneurs to proudly support swadeshi (indigenous) and Made in India products. According to the Prime Minister, self-reliance must come not from desperation, but from confidence. In a world increasingly driven by economic self-interest, India must empower itself without complaining about challenges.

In at least two public addresses last week, PM Modi reiterated the same vision. Analysts believe this is a direct response to US President Donald Trump’s decision to impose 50% tariffs on Indian exports. This move has threatened jobs in sectors like textiles, shrimp, and diamonds. In this context, Modi’s message is clear: produce in India and consume in India.

Manufacturing’s Stagnation and the Need for Reform

India’s manufacturing sector has remained stagnant, contributing around 15% to the GDP for decades. Despite policies like Make in India and various subsidies, the growth hasn't been as expected. Experts argue that just offering subsidies isn’t enough. Boosting consumer demand is essential, and the best way to do this is through tax reforms.

Earlier this year, the government provided income tax relief worth nearly ₹1 lakh crore, which slightly improved consumers’ purchasing power. Now, the Modi government is working on a major overhaul of the Goods and Services Tax (GST) system.

While GST replaced multiple indirect taxes when it was launched eight years ago to simplify tax compliance, over time it has become complex. Businesses and industry bodies have consistently complained about the complicated structure. In response, the Prime Minister has promised a simpler, more effective GST, and the Finance Ministry is now considering a two-slab GST system.

Impact of Tax Reform: More Money in Hands, Stronger Economy

According to analysts at US brokerage firm Jefferies, the proposed reforms could put an additional ₹2 lakh crore in the hands of Indian consumers. Private consumption contributes about 60% to India’s GDP. Hence, strengthening domestic demand is the most effective strategy, especially as global trade faces uncertainties due to tariffs and geopolitical tensions.

Urban consumers, hit by job losses in IT and low wage growth, are struggling. Tax relief could rejuvenate demand in cities. During the festive season, sectors like two-wheelers, small cars, clothing, and cement could see a spike in sales if reforms are implemented in time.

Morgan Stanley predicts that these fiscal and tax incentives will support growth, curb inflation, and stabilize the economy amid global uncertainty. While temporary revenue loss might occur, it can be offset by surplus levies and RBI dividends.

Additional Boost from Public Sector Incomes

Government data shows that wages of nearly 5 million government employees and pensions of 6.8 million retirees will rise early next year. Combined with tax reforms, this will further stimulate consumption and investment, especially during the festive season.

The stock markets have welcomed these announcements. Despite global tensions, investors view this as a positive step. In fact, this month S&P upgraded India’s sovereign rating after 18 years, signaling improved investment climate and reduced borrowing costs.

Challenges and the Way Forward

India still faces hurdles global trade pressures, tariff conflicts with the US, oil-related tensions with Russia, and inflation risks. But with strong domestic policies like tax reforms, simplified GST, and focus on consumer spending, India can balance these challenges.

Ultimately, PM Modi’s announcements aren’t just about politics or elections. They represent a larger economic vision to strengthen India from within. The future of India’s economy now depends on two key forces: the government’s reform-driven policies and the confidence of Indian consumers.

If these align, this package of tax relief and reforms may not just be a Diwali gift but a decisive step toward a truly self-reliant India.

Key Factors

•  Proposed tax reforms and GST simplification can put ₹2 lakh crore into consumer hands.
•  Private consumption accounts for 60% of India’s GDP.
• Small businesses are the real engine of India’s economy.
• Reform can revive urban demand weakened by job losses.
• Rising salaries and pensions will further boost consumption.
• Global pressures make internal demand even more critical.
• India’s sovereign rating upgrade reflects investor confidence.
• Tax cuts may reduce government revenue temporarily, but RBI dividends and levies can bridge the gap.