GST 2.0, tax rebates, cheaper EMIs to drive small car revival: Maruti's Partho Banerjee

Maruti has reduced car prices by up to 24% in the GST 2.0 regime.

The small car segment, which has been under pressure for the past few years, is expected to see a revival on the back of the GST 2.0 reforms, income tax rebates and lower borrowing costs, according to a senior official of the country's largest passenger vehicle (PV) manufacturer, Maruti Suzuki India.

The carmaker has already reported strong festive demand, with retail sales crossing 80,000 units between September 22 and 25, coinciding with the start of the Goods and Services Tax (GST) 2.0 regime and the Navaratri festival.

According to Maruti, its sales momentum was led by small cars. Bookings for the segment rose nearly 50% in the four days, while in smaller towns outside the top 100 cities, booking growth was close to 100%. Overall bookings across the company's portfolio were up around 35%, while daily bookings averaged 18,000 units during this period, supported largely by entry-level models.

In an exclusive interaction with Moneycontrol, Maruti's Senior Executive Officer for Marketing and Sales, Partho Banerjee, said three factors will aid a turnaround in the entry segment.

"First is the GST 2.0 reform, which has reduced the price of the car. The second tailwind is that in this year's Finance Bill, there has been a rebate in the income tax, which helps us to get some surplus money, by which a customer can afford to pay the down payment. And the third tailwind is the reduction in the repo rate of 100 basis points. Some banks have transmitted it, some are yet to do it, but I think it is a matter of time. Maybe in Q3, we will be seeing that most of the banks are going to transmit the repo rate reduction. That will help in further reducing the equated monthly instalments (EMIs)," he said.

One of the models expected to benefit is the Alto, once India's best-selling car. Its volumes had fallen sharply in recent years due to the cost impact of safety and emission regulations. "The Alto was the car which put India on wheels, and it was selling well. The reason for the volumes to go down was basically the regulations and the safety norms. With the GST 2.0, the prices have reduced. And I surely think that the people will again start coming back to it," Banerjee said.

Even as small cars look to regain ground, Maruti acknowledged that the definition of an entry-level car has changed. "For different customers, the entry-level car can be different. We see today that for a bigger car, there are first-time buyers. Some people are directly upgrading to an SUV, even a mid-SUV," Banerjee said. He pointed out that car penetration in India remains very low at 34 vehicles per 1,000 people, suggesting a large base of two-wheeler owners looking to upgrade.

For reference, the entry-level segment recorded volumes of 3.69 lakh units in FY19 with a market share of 10.9%. Both volumes and market share plunged to 1.44 lakh units and 3.3%, respectively, in FY25.

Small cars, which once dominated the PV market, have steadily lost share to SUVs. Several entry hatchbacks such as the Hyundai Santro and the Datsun Go have exited the market. Current rivals to Maruti's small car line-up include the Renault Kwid, Tata Tiago and Hyundai Grand i10 Nios. All have benefited from the GST 2.0 reforms due to price cuts.

Earlier, small cars attracted a GST of 28% along with a compensation cess of 1-3%, resulting in a total tax incidence of 29-31%. In the GST 2.0, such vehicles are in the 18% slab, while compensation cess has been removed on all automobiles. With lower taxes, the ex-showroom prices have come down, giving direct savings to buyers.

Price reductions under GST 2.0 have been substantial across Maruti's portfolio, with the deepest cuts in entry-level models. The S-Presso is cheaper by up to Rs 1.29 lakh, the Alto K10 by up to Rs 1.07 lakh, the Celerio by Rs 94,100, the WagonR by up to Rs 79,600 and the Ignis by up to Rs 71,300. Among premium hatchbacks, the Swift and Baleno have become cheaper by up to Rs 84,600 and Rs 86,100, respectively.

The price cut is from 12.6% to 24% on the S-Presso, 10.6% to 20% on the Alto K10, 8.6% to 17% on the Celerio, and 8.7% to 14% on the WagonR. While the net effect of the GST restructuring on the car prices is around 8.5%, Maruti has further reduced the prices, particularly on the entry-level models, to attract two-wheeler owners looking to upgrade to four-wheelers.

Banerjee cautioned, however, against reading too much into the immediate sales surge. "My take is that at the end of the day, we should not get too much overexcited by the growth rate which we will see in the next two to three months, because there will be a pent-up demand which will be coming. We have to see next year. Next year will be the right time to see how the demand will be," he said.

On the broader industry outlook, he observed: "If you see CAGR of the auto industry, it was earlier growing at a rate of almost 6-7%. Our take is that we should not see in the short term. But from next year onward, we will see that the auto industry may be growing at a CAGR of 6-7% again."