Car, two-wheeler sales may dip this festive season amid govt's GST restructuring plan

The PV and two-wheeler segments are battling subdued demand at present.

With the Centre considering a rationalisation of the Goods and Services Tax (GST) structure, the automobile sales, particularly of small cars and entry-level two-wheelers, may experience a decline this festive season, which will start with Onam and Ganesh Chaturthi later this month, according to sector experts.

All types of internal combustion engine (ICE) vehicles -- passenger vehicles (PVs), two-wheelers, three-wheelers and commercial vehicles (CVs) -- fall under the 28% GST slab. While the electric vehicles (EVs) come under 5% slab, the hydrogen fuel cell vehicles (FCEVs) are in the 12% slab. Apart from GST, the government imposes a compensation cess, ranging from nil to 22%, depending on the vehicle category.

As part of the GST rationalisation, the government is expected to remove the 12% and 28% slabs and retain the 5% and 18% slabs. The move will push the mass-market vehicles to the lower 18% slab. However, the luxury models might be placed in a new 40% bracket.

The ex-showroom price of any vehicle is inclusive of GST. A reduction in the tax, from 28% to 18%, will directly bring down the ex-showroom price, and consequently, the on-the-road price. But with uncertainty over timelines and India being a highly price-sensitive market, experts believe that the consumers may defer their purchases.

"Consumers, in anticipation of a lower price point, may choose to postpone their purchases. This is a classic example of 'wait and watch' behaviour, where the promise of future affordability can temporarily dampen current demand. While this is a minor headwind, the long-term benefits of increased affordability and consumer access will far outweigh any short-term market fluctuations," EY India Partner and Automotive Tax Leader Saurabh Agarwal told Moneycontrol.

According to Primus Partners Advisor Anurag Singh, a GST cut will lower the price of the base variant of a popular entry-level car by up to Rs 36,000 and that of a top-selling commuter motorcycle by about Rs 6,200.

"These savings are substantial for price-sensitive buyers. With Diwali just two months away, many consumers may defer their purchases, potentially pushing festive season sales back by a few weeks," Singh said.

S&P Global Mobility Light Vehicle Production Forecasting Associate Director Gaurav Vangaal said that a timely clarification from the government is crucial to prevent prolonged hesitation in purchase decisions. "That said, clarity could emerge from the upcoming meetings of the Group of Ministers (GoMs) and the GST Council, allowing enough time for minimising any adverse impact on the core festive season demand," he added.

The GST rationalisation proposal comes at a time when the PV and two-wheeler segments are battling subdued demand, and companies are looking at the festive season for green shoots.

According to the official data from Society of Indian Automobile Manufacturers (SIAM), the PV volumes dropped 0.7% year-on-year at 13,13,133 units in April-July FY26. During the same period, the two-wheeler volumes declined 2.9% year-on-year at 62,41,829 units.

During the Q1 FY26 earnings call, Maruti Suzuki India's Senior Executive Officer for Corporate Affairs, Rahul Bharti, said "Q1 has not been up to the mark. Q2 has some positives; we are waiting for the festive season. There are other positives also, like the monsoon and rural is holding up. So, we are looking at Q2 and the festive season with optimism. Part of the festive season runs into Q3 also. So, we are hoping that it should be a better festive season than what we have seen in the financial year so far."

"The economic landscape appears notably optimistic as we approach our festive season, commencing with Onam on August 26 and Ganesh Chaturthi on August 27. Multiyear low inflation recorded in June, coupled with significant RBI rate cuts and favourable monsoon, should help in demand sentiment as the year progresses. Riding on this positive optimism, we expect two-wheeler demand to continue its upward trajectory as we enter the upcoming festive season," said Vikram Kasbekar, Acting CEO, Hero MotoCorp, at the Q1 FY26 earnings call.