How Will GST Reforms Transform the Automobile Industry?

New Delhi, Sep 12 (NationPress) The recent GST reforms in the automobile sector are set to significantly enhance demand, providing substantial benefits to automobile manufacturers and related industries, including tyres, batteries, glass, steel, plastics, and electronics, as reported by the government.

With a rise in vehicle sales, a multiplier effect is expected, positively impacting MSMEs throughout the supply chain. The rate reductions apply to various categories, including bikes (up to 350cc), buses, both small and luxury cars, tractors (under 1800cc), and auto components.

The auto sector sustains over 3.5 crore direct and indirect jobs in areas such as manufacturing, sales, financing, and maintenance. An uptick in demand will foster new employment opportunities at dealerships, transport services, logistics, and among component MSMEs. Informal sector jobs, including those of drivers, mechanics, and small service garages, will also see benefits from the GST reductions, according to government insights.

“Purchases driven by credit will boost retail loan growth, enhance asset quality, and foster financial inclusion in semi-urban regions of India. The streamlined GST rates offer policy stability, promoting new investments and supporting Make in India initiatives. The GST cuts will encourage the replacement of older vehicles with new, fuel-efficient options, thereby advancing cleaner mobility,” the statement emphasized.

Lowered GST rates will make bikes more affordable for young people, professionals, and households in the lower-middle-class bracket. This is anticipated to improve the savings of gig workers through reduced costs and lower EMIs for two-wheeler loans.

Moreover, cars in the affordable segment will become less expensive, attracting first-time buyers and enhancing household mobility. The reduction in GST is likely to stimulate sales in smaller cities and towns where compact cars are prevalent.

Increased sales will benefit car dealerships, service networks, drivers, and auto-finance organizations.

The removal of the additional cess has not only led to lower rates but also simplified and clarified the taxation process.

“Despite a 40% tax rate, the absence of the cess will make larger cars more affordable for aspiring buyers. Adjusting the tax rate to 40% while eliminating the cess will also allow these industries to fully utilize ITC, which previously could only be accessed up to 28% and not for the cess component,” the government elaborated.

India stands as one of the largest tractor markets globally, and the GST cut is expected to stimulate demand in both domestic and export markets. Components for tractor manufacturing, such as tyres and gears, will now be taxed at just 5%.

Supporting MSMEs that produce engines, tyres, hydraulic pumps, and spare parts will result in increased production. The GST cut will also enhance India’s status as a global tractor manufacturing hub.

The enhanced affordability of tractors will promote mechanization in the agricultural sector, leading to improved productivity for staple crops such as rice and wheat.

Trucks form the backbone of India’s supply chain, accounting for 65-70% of goods traffic. A reduction in GST lowers the upfront capital cost for trucks, subsequently decreasing freight rates per tonne-kilometer.

This will facilitate cheaper transportation of agricultural goods, cement, steel, FMCG, and e-commerce deliveries while alleviating inflationary pressures. Additionally, it will support MSME truck owners, who represent a significant portion of India’s road transport sector. More affordable trucks will directly contribute to lowering logistics costs, thereby enhancing export competitiveness. These measures align with the objectives of PM Gati Shakti and the National Logistics Policy.