Two-wheeler sales volume is expected to grow 5-6 per cent this fiscal, while that of passenger vehicles to see a 2-3 per cent rise, following the GST rates rationalisation on automobiles, according to Crisil Ratings.
The GST Council's decision to move to a two-rate structure of 5 per cent and 18 per cent, effective September 22, 2025, is a timely move that will revive demand for automobiles, Crisil Ratings said in a statement.
"With the GST cut fully passed on, vehicle prices are expected to drop 5-10 per cent (Rs 30,000-60,000 on small PVs and Rs 3,000-7,000 on two-wheelers).
"With the rate cut coinciding with the Navratri and the festive season, sentiment would get a timely boost. Coupled with new launches, softer interest rates and improved affordability, this should drive a stronger second half for the automobile sector," Crisil Ratings Senior Director Anuj Sethi said.
According to the ratings agency, two-wheelers and passenger vehicles (PVs), which together account for 90 per cent of the domestic automobile industry's volume, are expected to see demand increase around 200 basis points (bps) and about 100 bps, respectively.
"As a result, two-wheeler sales volume is expected to grow 5-6 per cent this fiscal, while that of PVs may rise 2-3 per cent," it said, adding that in the April-August period this fiscal, two-wheelers volume growth was almost flat at around 0-1 per cent, while that of PVs declined in the range of 3-4 per cent.
Under the revised GST structure, rates on small PVs, two-wheelers up to 350 cc (nearly 90 per cent of the segment sales), commercial vehicles (CVs) and three-wheelers will drop to 18 per cent from 28 per cent.
Mid and larger PVs will also see a 3-7 per cent cut, while tractors will benefit from a reduction to 5 per cent and 18 per cent from 12 per cent and 28 per cent, respectively, Crisil Ratings said.
For CVs, the lower GST should offset the cost push from the mandatory AC cabin requirement starting from October 1, 2025.
"In contrast, motorcycles above 350 cc will face a higher levy, moving to a 40 per cent special rate, compared with the current 31 per cent, including compensation cess, making them costlier," it added.
Welcoming the GST rate rationalisation and simplification, Skoda Auto Volkswagen India Pvt Ltd, CEO & MD, Piyush Arora, said it is a step that the automotive industry has been seeking for a long time.
"The shift to an 18 per cent slab for small cars will enhance affordability and support stronger demand in the high-volume segment. At the same time, the 40 per cent slab for premium and luxury vehicles provides clarity and simplifies taxation, helping customers make informed choices with greater confidence," he noted.
With a diverse portfolio spanning Skoda and Volkswagen to Audi, Porsche, Lamborghini and Bentley, Arora said, "We recognise the significance of reforms that balance accessibility with aspiration. Such reforms have the potential to strengthen market sentiment, encourage demand across segments, and create a more conducive environment for long-term growth." This approach signals the government's intent to make the tax ecosystem more equitable and future-ready, which will benefit the entire value chain and further boost India's position as a key automotive hub, he noted.
In a statement, Kia India also said the progressive move by the government will instil confidence and stimulate demand across diverse segments, thereby significantly boosting the auto industry's growth.
