New GST Regime Could Boost Entry-Level Cars, Says Rajesh Menon
Rajesh Menon, director general, Society of Indian Automobile Manufacturers, talks to Rakshit Kumar about the impact of the new GST regime and the challenges facing the auto industry among other things. Edited excerpts
Why has the growth of the passenger vehicle (PV) industry slowed down?
There was almost no production for some months during the pandemic, so it was obvious that the industry would show strong recovery on a low base post-2020-21. In the last financial year [2024–25], we saw growth of around 2%, but the number of units sold was 4.3mn, the highest ever wholesale.
We are seeing continued stress in the entry-level segment, while UVs [utility vehicles] are seeing very high demand. In fact, we are seeing 60%-plus share in the UV segment.
So clearly, there is strong urban demand for UVs, but there are challenges in the entry-level segment, which means there are challenges on affordability. Vehicle prices have gone up due to a series of regulations. People aspiring to buy at a particular price point are finding it unaffordable. This will get addressed in the new GST regime. The reform will bring renewed cheer to consumers and inject fresh momentum into the Indian automotive sector.
Are first-time buyers not coming into the entry-level market?
First-time buyers are finding it more difficult to purchase a vehicle because of unaffordability. Markets are price-sensitive. Having said that, there is also a strong pick up in the used-car market, which has shown good growth. The used-car market is projected to be about 6mn units this fiscal year compared to 4.3mn new cars in 2024–25.
With the new GST regime, however, vehicles will get more affordable, especially in the entry-level segment, significantly benefitting first-time buyers and middle-income families. You will find new products in the entry-level market now.
There will be a reverse trend now. People who were earlier moving towards the used-car market will move towards new entry-level cars.
What are the reasons behind the preference for UVs among buyers?
People are buying vehicles with higher ground clearance and more features. UVs are picking up even in the sub-4m segment. The trend is very clear.
After Covid, multiple such products came into the market, they were received well, demand grew and therefore more models came in. Several new UV models have come in the past 3–4 years as everything is demand-driven.
People are buying vehicles with higher ground clearance and more technical features. UVs are picking up even in the sub-4m segment
Can we say that original equipment manufacturers (OEMs) are getting more experimental with their products?
There are new products coming, new features, more electronics, more connected vehicles, ADAS [advanced driver-assistance systems], etc. As we move forward, you will see more technology being used in vehicles. That is a natural trend as consumers are responding positively to these new technologies and features.
How do regulations impact growth, planning and investments in the sector?
Regulations on emissions and safety are constant items of discussion with the government. We always try to have a regulatory road map for the coming 7–10 years, particularly on emissions and safety. We are now in discussions with the government on BS VII [Bharat Stage VII emission standards].
Do you think EV adoption so far has been more policy-driven than demand-driven?
Multiple technologies and drivetrains are in the market. Consumers can choose whichever technology they want. Currently, there is no additional government subsidy for electric cars, except that the EVs are levied a lower GST of 5%.
While suitable government support has been provided for EVs initially, consumers do have the option of several technologies that are available in the market. We are continuing to see growth in the EV offtake.
How do you see the rising competition in the sector?
There is nothing wrong in having competition. Competing players are coming out with new aspirational products, which is a good thing for the consumers. The market has been competitive, and it is going to be more competitive.
With auto contributing nearly 50% to India’s manufacturing GDP, do you see geopolitical tensions as a major threat to India becoming a global manufacturing hub?
Indian automobile manufacturers have limited exposure to the US market. Indian industry is looking at newer markets for export. The industry has been very aggressive in exports during the past 2–3 years across cars, two-wheelers and three-wheelers, especially in Latin America, Africa and the Gulf.
What do you see as the biggest opportunities and risks for the auto sector?
In terms of opportunity, during the past few months there have been several policy announcements to spur consumption and demand. These include lowering repo rates, changes in income-tax slabs and GST rate reduction. These steps would definitely spur consumer demand.
Supply chain resilience is a challenge. We are dependent on some countries for certain key elements, so resilience is very critical. The industry is already working to localise components and technology where we depend on imports presently.
The second challenge is regulations. We are in discussion with the government to have a structured regulatory road map so there are no surprises for the industry.