Could GST Rationalisation Boost First-Time Two-Wheeler Buyers?
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Synopsis
A new report reveals that the anticipated GST rationalisation could be a game-changer for first-time two-wheeler buyers. This significant tax reduction, paired with rising disposable incomes, could lead to a surge in demand within the two-wheeler market, especially ahead of the festive season.
Key Takeaways
- GST reduction of 10% could enhance affordability for two-wheelers.
- The two-wheeler market is expected to see a 6-8% CAGR post-GST cut.
- Royal Enfield may face challenges if GST on bikes over 250cc rises to 40%.
- Replacement sales currently dominate new sales, making up 70-75%.
- EV demand could shift significantly based on price adjustments in ICE vehicles.
New Delhi, Aug 29 (NationPress) A recent report suggests that the anticipated restructuring of the Goods and Service Tax (GST) slab ahead of Diwali this year could significantly increase the number of first-time buyers in the two-wheeler (2W) segment.
The proposed 10 per cent GST reduction (from 28 per cent to 18 per cent) is expected to make two-wheelers considerably more affordable, potentially revitalizing demand for both first-time purchasers and those looking to replace their existing vehicles, according to HSBC Global Investment Research.
Support from the Eighth Pay Commission, expected to kick in by mid-2027, will further bolster this trend.
The two-wheeler industry has recorded a 2.3 per cent CAGR from FY15 to FY25; however, with rising disposable incomes, the report forecasts a surge to 6-8 per cent CAGR from FY25 to FY30.
Original Equipment Manufacturers (OEMs) with a strong domestic presence are likely to reap the most benefits.
Furthermore, intra-segment transitions are anticipated to occur with price reductions (for instance, a shift from the 75-110cc category to the 110-125cc segment may persist even after the GST adjustment).
Royal Enfield is in a unique position amidst ongoing uncertainties. The government might revise the lower GST threshold from 350cc to 250cc or perhaps even 150cc.
According to the report, “Even if Royal Enfield’s prices remain stable, the brand’s relative market standing could weaken, limiting volume expansion. This would be significantly detrimental if all bikes over 250cc are subject to a 40 per cent GST.”
The report indicates a mixed outcome for EV OEMs—negative in the short term, but positive in the long run: A potential 7-8 per cent price drop in ICE vehicles could raise the break-even point for EVs, making them less appealing temporarily.
On the upside, with only two GST categories of 5 per cent and 18 per cent, it seems improbable that the government will hike GST on EVs anytime soon.
However, demand for lower-end EVs (priced below 1 lakh) is likely to be more adversely affected than that for the premium segment.
The report predicts TVS and Bajaj Auto will capture a larger share of the projected growth in the domestic two-wheeler market post-GST reduction.
From 2019 to 2025, prices of two-wheelers surged by 25-30 per cent, negatively impacting demand.
“We estimate that replacement sales currently account for 70-75 per cent of new sales, compared to the usual 40-45 per cent,” the report concluded.
Point of View
My perspective on this report emphasizes the significant potential for growth in the two-wheeler sector, especially for first-time buyers. The proposed GST rationalisation offers a promising opportunity to stimulate demand, benefiting consumers and manufacturers alike. We stand to witness a transformative shift in the automotive landscape as these changes unfold.
NationPress
30/08/2025
Frequently Asked Questions
What is the expected GST reduction for two-wheelers?
The anticipated GST reduction is 10%, lowering the rate from 28% to 18%.
How will the GST cut impact two-wheeler prices?
The GST cut is expected to make two-wheelers more affordable, potentially boosting sales among first-time buyers and those looking for replacements.
When will the Eighth Pay Commission provide support?
Support from the Eighth Pay Commission is expected to commence in mid-2027.
Which companies may benefit the most from the GST cut?
Original Equipment Manufacturers (OEMs) with a strong domestic market presence, such as TVS and Bajaj Auto, are likely to benefit the most.
What are the long-term expectations for EV manufacturers?
While the near-term outlook for EV OEMs is negative, the long-term projections remain positive due to the anticipated market adjustments.
