New Delhi [India], September 7 : Two-wheeler sales volume is expected to grow by 5-6 per cent in the current fiscal year, due to the Goods and Services Tax (GST) Council's decision to rationalise tax rates, Crisil Ratings said in a report.
The rating firm said that the move is expected to provide a much-needed stimulus to the domestic automobile industry, particularly two-wheelers and passenger vehicles (PVs), which together account for nearly 90 per cent of the market's volume.
The reduction in GST rates is forecast to drive a 200 basis points (bps) upshift in two-wheeler demand and a 100 bps increase for PVs, the report added.
Sales in the two-wheeler segment had suffered in the first quarter of this fiscal, especially in the entry-level commuter category, due to disruptions stemming from the implementation of On-Board Diagnostics II (OBD2) norms.
Additionally, the early and intense onset of the southwest monsoon curtailed rural activity and dampened consumer sentiment.
According to the rating agency, growth in the PV segment is expected to be more modest at 2-3 per cent this fiscal year. Affordability concerns, shortages of rare-earth minerals, and purchase deferrals in anticipation of GST cuts had contributed to subdued sales during the June-August period.
Beyond demand revival, simplified slabs will also streamline compliance and lower logistics costs through smoother interstate taxation, supporting profitability across the value chain, the report added.
"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; 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," said Anuj Sethi, Senior Director, Crisil Ratings.
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.
For CVs, the lower GST should offset the cost push from the mandatory AC cabin requirement from October 1, 2025.
In contrast, motorcycles exceeding 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 more expensive.