Will the GST Reduction Stimulate Long-Term Auto Demand and Job Growth in India?
Click to start listening
Synopsis
The potential reduction in GST could radically transform India's auto industry, paving the way for increased demand and job opportunities. With ongoing discussions about simplifying tax structures, the implications for manufacturers and consumers could be profound. Stay tuned to understand how these changes may impact the future of automobiles in India.
Key Takeaways
- The potential GST reduction could enhance long-term auto demand.
- Job creation in the automotive sector is expected to rise.
- Smaller cars may see a price drop of up to 8%.
- The government aims to simplify GST slabs.
- Major beneficiaries include OEMs like Maruti Suzuki.
New Delhi, Aug 18 (NationPress) A forthcoming goods and services tax (GST) reduction is anticipated to enhance long-term automobile demand and create jobs in India, according to a report by HSBC Global Investment Research.
The government aims to streamline the GST slabs in the country, with the 28 percent slab possibly decreasing to 18 percent, while the cess levied on top of the GST rates for automobiles could be eliminated.
Passenger vehicles (PVs) contribute approximately $14-15 billion in GST collection, with two-wheelers accounting for $5 billion.
“Details are still unclear, so we are exploring various scenarios to outline company-level exposure to different GST rates, providing a framework for investors to assess the comparative benefits across original equipment manufacturers (OEMs),” the report highlighted.
Presently, for PVs, the GST fluctuates between 29 percent and 50 percent, as a cess is added based on the vehicle's size (cubic centimeters and length). Under the new framework, the government may lower the tax on smaller cars to 18 percent (down from 28 percent) and adjust larger vehicles to a ‘special rate’ of 40 percent while abolishing the cess on top of the GST,” the report proposed.
This change could lead to an estimated 8 percent price decrease for smaller cars and a reduction of 3-5 percent for larger vehicles.
“In this scenario, OEMs such as Maruti Suzuki India Ltd (MSIL) would significantly benefit due to their strong focus on small cars (68 percent of volumes in the 28 percent category). For M&M, the anticipated GST reduction is also favorable, although it faces challenges due to its greater reliance on electric vehicles (EVs),” the report noted.
A flat reduction from 28 percent to 18 percent across all vehicle sizes, maintaining the existing conditions, presents a simplified tax regime, albeit an unlikely one where the basic GST drops from 28 percent to 18 percent while keeping the cess unchanged based on vehicle size.
“In this case, all vehicle categories would see a price reduction of around 6-8 percent. A uniform 10 percent cut would result in the government absorbing a revenue loss of roughly $5-6 billion,” the report indicated.
While a flat reduction from 28 percent to 18 percent with cess discontinuation would greatly simplify the tax structure, it remains an improbable scenario due to its substantial impact on government revenues (potentially affecting about half of GST revenues).
Point of View
It is imperative to recognize that the proposed GST reduction could serve as a catalyst for growth in the automotive sector. It aligns with the government's vision for economic expansion while addressing the pressing need for job creation in India. The simplification of tax structures could not only benefit consumers but also strengthen the overall market.
NationPress
07/10/2025
Frequently Asked Questions
What is the current GST rate for passenger vehicles?
The current GST for passenger vehicles ranges from 29 percent to 50 percent, depending on the size of the vehicle.
How will the GST reduction impact car prices?
The GST reduction could lead to an 8 percent decrease in prices for smaller cars and a 3-5 percent reduction for larger vehicles.
What are the expected benefits of the GST reduction?
The expected benefits include increased automobile demand, job creation, and financial relief for consumers.
Which manufacturers are likely to benefit the most?
Manufacturers like Maruti Suzuki India Ltd are likely to benefit significantly due to their focus on small cars.
What could be the impact on government revenues?
A significant reduction in GST could lead to a revenue loss of around $5-6 billion for the government.
