The Reforms Journey

GST cuts likely to help kickstart slowing small car sales, but festive buying may be impacted

- By MANU BALACHANDRAN

THERE IS A SILVER LINING FOR India's car buyers. The only problem is that it might dampen the festive sales.

During his address to the nation on Independence Day, Prime Minister Narendra Modi announced that the government was ready to reduce the rate of the Goods & Services Tax (GST). “I am going to make it a double Diwali for you,” Modi said. “We are coming with the next generation of GST reforms, which will be a gift for you. Taxes for the common man will be reduced substantially, and a lot of facilities will be increased.”

Under a new plan approved by a six-member Group of Ministers (GoM), GST will now comprise only two slabs: 5 percent and 18 percent. Currently, GST is levied at four rates: 5 percent, 12 percent, 18 percent, and 28 percent. A 40 percent levy will be imposed on ‘sin goods’ such as tobacco and certain luxury items, including luxury cars.

The auto sector is expected to reap significant benefits from the new tax regime. It’s also likely to give a boost to the sales of small cars, which have seen a steep decline in the last decade. According to the Society of Indian Automobile Manufacturers (SIAM), domestic sales in the mini segment (cars measuring up to 3.6 metres in length) declined from 460,772 in FY19 to 152,262 in FY24 and 133,397 in FY25, representing a drop of over 70 percent in six years.