A Rollercoaster Ride?

Car sales zoom with GST cuts, but EV adoptions may stutter as the tax gap shrinks between them and ICE vehicles

- By MANU BALACHANDRAN

INDIA'S AUTO INDUSTRY IS suddenly having a blast. After months of lacklustre sales, the world's third-largest car market is experiencing a revival, thanks to the government's decision to reduce GST. To add to that, the cuts came ahead of the festive season, which typically contributes about 40 percent of annual sales.

“The GST cut has created a genuine affordability kicker just ahead of the festive window. Passenger cars, two-wheelers, and parts moving from 28 percent to 18 percent GST translates to an effective 7–8 percent relief in on-road prices,” says Harshvardhan Sharma, group head for automotive tech and innovation at Nomura Research Institute. “Most OEMs have already passed this on through cuts of up to ₹3 lakh, layered with festive schemes. As a result, we’re seeing the classic elasticity effect.”

This means buyers who had deferred purchases are returning, dealer inventories are easing, and booking momentum has improved. So much so that on the day the new taxes came into effect, most auto dealerships saw queues after many years. On September 22, the day the GST rate cuts took effect, Tata Motors reported sales of approximately 10,000 passenger vehicles, with Maruti Suzuki and Hyundai selling 30,000 units and 11,000 units, respectively. “We expect near-term double-digit volume uplift, particularly in entry and compact segments, with operating leverage offsetting any pressure from lower ASPs,” adds Sharma.

Among others, the GST cut from 28 percent to 18 percent, coupled with the government’s decision to withdraw a compensation cess that often ranged from 17 percent to 22 percent and instead keep a flat taxation rate of 18 percent and 40 percent (for luxury cars) has reduced car prices across the country ahead of the festive season.