The Different Degrees of GST 2.0's Impact On India's Auto Industry

At the 65th SIAM Convention in New Delhi, many heads of large automotive manufacturers expressed that the new GST reforms will make purchasing new cars, bikes, and commercial vehicles much easier than before. Some are even optimistic that sales will reach as high as they were before the pandemic. 

For perspective, the Government of India has reduced the GST on small cars (sub-4 metres, with less than 1200 cc petrol engines/ 1500 cc diesel engines/ CNG/ LPG/ Hybrid) to 18 per cent from 28 per cent, 29 per cent and 31 per cent (as applicable). There has been no change in the GST slab of EVs, which remains at 5 per cent. Similarly, for cars over 4 metres in length, the GST slab has reduced to 40 per cent, from 43 per cent, 45 per cent an 48 per cent (as applicable). 

Starting with India’s largest automaker, Maruti Suzuki, the brand’s Senior Executive Officer, Marketing & Sales, Partho Banerjee, said, “If you see the cars which were earlier at the slab of 28 per cent, now they move to 18 per cent. So we have calculated that the net benefit to the consumer will be 8.5 per cent.” Maruti Suzuki will not just pass on the GST benefit to the consumers at the time of purchase of the vehicles, but also at the service level, where even components become more affordable with the new GST slabs. 

Tarun Garg, COO, Hyundai India, also extends the same thoughts, stating that price cut in the sub-4 metre segment is in the tune of 8.5 to 9.5 per cent. He added, “In the last 20 years, I’ve never seen this kind of a price cut and for the bigger car as well where the GST, and overall tax incidence, comes down from 3 per cent to 10 per cent, the price is about 3.5 per cent to 6 per cent.” 

The penetration of cars in India is about 34 per thousand people, and Garg feels that this new GST reform will bring in more first-time buyers into the fold. He also feels that the aspiration of buyers will be more satisfied now, as for the same price, they will be able to buy “a better car”, a “car with more features, a car which is safer, whether it has ADAS level 2, whether it has more connectivity, six airbags, technology, automatic” is what Garg meant. 

Nalinikanth Gollagunta, CEO of Mahindra’s Automotive Division, said that it’s great that the government has not changed GST on electric vehicles, which remains at 5 per cent, showing the government still feels EVs are important. However, Gollagunta said that Mahindra is not so concerned about the differential in price going down, stating that “you could have some customers who might look at it but really if you sell the right features, the born-electric features we put out there, the software-defined features we put out there, it’s still something which is much ahead than what ICE vehicles can put out there.” He feels that Mahindra will continue to drive the kind of sales volumes it has already been doing in the EV portfolio. 

It’s very straightforward for motorcycles as the GST has reduced from 28 per cent to 18 per cent for bikes with engines smaller than 350 cc. However, bikes with engines larger than 350 cc see an increase in GST from 31 per cent to 40 per cent. Even for commercial vehicles, the GST slab has been reduced to 18 per cent from 28 per cent. 

Moving on to the two-wheeler and commercial vehicle segment, Diego Graffi, Chairman and Managing Director, Piaggio Vehicles Pvt Ltd (India), said the overall perspective on GST is quite positive. For Piaggo, it’s been a mixed bag response for GST. The Piaggio commercial vehicle brand sees marginal to no change in GST reforms, while Vespa and Aprilia scooters will become cheaper. However, the Aprilia motorcycles will become more expensive with the reformed GST structure, since both the motorcycles (RS 457 and Touno 457) fall under the 350 cc+ segment. 

Ganesh Mani, CEO of Switch Mobility, talked about the Light Commercial Vehicle segment, since the electric bus segment is still in its nascent stage and is predominantly made based on government orders. He said, “In terms of e-LCVs, we have spoken to a lot of customers, they have always been buoyant.” Mani also added that TCO (total cost of ownership) will play a very important role and act as a big advantage. Switch Mobility is also trying for a multi-pronged approach to make TCO justifiable to the consumers, and GST will help with all of this.