Trump, Putin, GST: A Hectic Week For India And The World

It has been a hectic week in India and the world at large. Last Friday saw the much-anticipated summit between US president Donald Trump and his Russian counterpart, Vladimir Putin, at Anchorage, Alaska, to find a solution that would end the war in Ukraine.

This Friday, all eyes are on Jackson Hole, Wyoming, where central bankers of the world get together for their annual powwow. The world wants to know if the chairman of the US Fed, Jerome Powell, would give any indication of the likely policy action at the Fed’s September meeting. He is likely to leave people guessing, as no one knows how the data would pan out, whether US economic weakness would outweigh the risk of inflation.

Last Friday was also the 78th anniversary of India’s Independence. The Prime Minister addressed the nation from the ramparts of the Red Fort and reiterated his determination to shield the interests of India’s farmers and fishermen from any harm. This made it clear that India would not sign a trade deal with the US that would open up India’s agriculture, dairy and fisheries to unrestricted American produce.

Navarro Targets India

Trump has been, for mysterious reasons, wooing Pakistan, calling its army chief to Washington twice in quick succession, reducing the reciprocal tariff on Pakistan to 19%, lower than not just the initial proposal of 29% but also the tariff proposed for imports from India.

The tariff on India has been pegged at 25%, but Trump later said that since India continues to buy Russian oil, besides Russian arms, another penal slab of 25% duty would be added, bringing the total tariff burden to 50%. Trump has also promised to help Pakistan develop its mysterious new oil reserves, and sell oil to India, and its ‘dead economy.’ In Trump’s book, growing at an annual rate in excess of 6% and faster than anything else around is a sign of being dead, it would appear.

After the summit with Putin, Trump would appear to have eased off on the punitive tariff layer for buying Russian oil. However, that did not prevent his trade counsellor, Peter Navarro, from publishing an article in the Financial Times, in which he accused India of providing the financial lifeline for Russia’s Ukraine war by buying Russian crude and ‘laundering’ it in India before exporting refined products around the world.

Navarro chose to ignore the fact that China is the biggest buyer of Russian oil and gas, and that the US itself buys Russian uranium, fertilisers and palladium. Neither Navarro nor his master probably wants to take on China. Trump has de-emphasised penalising buyers of Russian oil in the wake of the summit with Putin.

Putin Wins Concessions

Putin has convinced Trump to abandon the demand for a ceasefire in Ukraine and work, instead, towards a peace deal, for which Russia demands the surrender of swathes of Ukrainian land to Russia, the land Russia needs along eastern Ukraine for Moscow’s land route to Russia’s only warm water naval base, located at Sevastopol in Crimea. But it was not a total loss for Ukraine, as Trump has expressed willingness to underwrite security guarantees for Ukraine.

The leaders of Britain, France, Italy and the European Commission met Trump earlier this week, soon after Trump met with Ukrainian president Zelensky, in Washington. The Europeans have so far presented Russia’s invasion of Ukraine as a threat to European security, but are so dependent on the US that they have to beg Washington for a place at the table when discussions are on to end that invasion and war. They are happy to focus attention on security guarantees, and let Zelensky stew all by himself in the simmering disappointment over having to give up land in return for peace.

Luxury Tax Trap

The Prime Minister announced major reform of GST in time for Diwali. The tax would be rationalised to have only two slabs, he said, a standard rate and a merit rate. Later, officials have let it be known that there would be four or even five slabs — the standard 18% rate, a merit rate of 5%, a 40% rate for luxury and sin goods, and possibly yet another low rate for gold, besides a zero rate.

While the rationalisation of GST is welcome, some questions do arise. Since GST is a tax in which the states have as much stake as the Centre, should the leader of the central government unilaterally announce changes to the tax?

If the 28% tax slab is to disappear, will people postpone purchase of cars and consumer goods that attract 28% at present till Diwali, to avail themselves of the lower 18% rate? Or would they be scared that the tax rate on the goods they want to buy would go up to 40%, and fast-forward those purchases?

Given the profligacy of poll-eve promises these days, states could be tempted to label a great many goods and services as luxuries and tax them at 40%. This would be a big mistake. It should not be left to individual state finance ministers and their fiscal hardships to determine what is or is not a luxury good or service.

The GST Council must decide on definite criteria for determining what is commonplace and what is luxe. A characteristic of luxury is that it is consumed for the sake of the exclusivity it offers, rather than for its utility. Goods priced on the basis of utility and quality can be standard goods and premium goods. If their price goes up, demand would fall.

For luxury goods, an increase in price would make them even more exclusive, and drive up their appeal. So, luxury goods should be defined as goods that do not suffer a reduction in demand when their prices go up.

The trouble with sin goods is that excessive taxation leads to consumers turning their demand to wholly tax-free smuggled goods or knock-offs. India has some of the highest rates of tax on cigarettes, and that leads to an influx of smuggled foreign cigarettes. The high duties on liquor lead to spurious high-end brands standing in for the real thing. Enforcement of the law of the land must combine with rational taxation, for domestic sinners to contribute to the exchequer to their fullest potential.

Another Trumpian Jolt

Champions in India of American free market economics have received yet another Trumpian jolt. The Trump administration wants a stake for the US government in the semiconductor companies that set up plants in the US, lured by the subsidies offered by the CHIPS Act, passed by the Biden administration. The US government, apparently, wants a 10% stake in chip designer and maker, Intel.

The Gaza war grinds on, killing and starving Palestinians and threatening Israeli occupation of Gaza city. Netanyahu’s ultra-conservative coalition partners are assiduously expanding Jewish settlement on the West Bank, designated for a future Palestinian state by the same UN decision that recognised Israel as a new nation. Israel is now moving in on Gaza city.

Labubus Triumph

China’s economy is undergoing a qualitative churn. Investment in factories, new office buildings and fixed assets in general has more or less stagnated over the first seven months of 2025. But industrial production continues at over 5.5%, even as the government discourages ‘involution’, excessive competition among Chinese companies that constitutes a race to the bottom.

However, the success of Lububu toys, cuddly collectible toys selling at ridiculous prices that have elevated the market value of their maker above that of Mattel, the producer of Barbie, testifies to China’s gradual move away from low cost and scale, to branding and quality. Surprisingly, the same function is performed by a 17th-century cough syrup, Nin Jiom Pei Po Koa, from the deep cupboards of traditional Chinese medicine, which is soothing the sore throats of an increasing number of westerners.

China’s foreign minister visited India recently, and met his counterpart and the Prime Minister, to smoothen the path for PM Modi’s participation in the Shanghai Cooperation Organisation summit scheduled for later this year at Tianjin, China. The visiting minister also indicated that supplies of rare earths and rare-earth-infused magnets to India would resume.

Two Bills Trouble

Earlier this week, the government passed a controversial bill to ban online gaming with a monetary dimension and regulate online gaming in general. This is wholly ill-considered. Betting and gambling form a state subject, on which the Union government cannot make laws.

If the money games the bill refers to are not gambling games, why ban them? The Constitution offers people the liberty to play games and to pursue any legal profession. Organising games of skill is a legal profession. The constitutional validity of games that are predominantly based on skill, rather than chance, has been reiterated by the Supreme Court and several high courts.

By outlawing online gaming that depend on skill, the government is violating constitutional guarantees of personal liberty and destroying a vibrant gaming industry and killing thousands of jobs.

The government has also brought in a law to remove from office ministers, including chief ministers and the prime minister, who are arrested and sent to jail for a month or more for a crime, the punishment for which is at least five years.

This violates the principle that people are innocent until proven guilty beyond final appeal. The recent acquittal of 12 people who were not only arrested and sent to jail pending trial for the 2006 train blasts in Mumbai but also convicted by lower courts, shows how presumptive it is to assume the guilt of people chosen by citizens to represent them, and remove them from office, just because they have been arrested and sent to jail.