Goods and Services Tax implementation: Will GST reform increase auto demand?

The Goods and Services Tax (GST) reforms will take effect from September 22. The central government has eliminated the 12 per cent and 28 per cent GST slabs and placed the items in these categories into 5 per cent and 18 per cent slabs, lowering GST on most of the goods and services. The prices of most of the products in the auto sector are expected to come down as well. Here's how the decision could impact the sector.

Most automobile companieshave decided to pass down the benefit of the GST relief to thecustomers, as they have announced discounts.

How will these discounts impact the industry?

Motilal Oswal said in a recent report that these discounts will increase demand. However, it also noted that after demand picks up, discounts may be reduced gradually to increase profit margins.

"With a pick-up in demand, we also expect discounts to trend down across key segments, which should drive margin expansion going ahead. On the back of demand revival and much better earnings growth," it added.

The company said that volume growth estimates across all key segments for FY26 and FY27 will increase. It said people may go for more premium cars, but the demand for small cars will increase.

Here's what the report predicted

Two-wheeler volumes are now expected to increase 4 per cent in FY26 and 7.5 per cent in FY27.

For passenger vehicles, the estimates have been raised to 3 per cent in FY26 and 8 per cent in FY27.

Commercial vehicles will grow at 5 per cent in FY26 and 7 per cent in FY27.

Tractor sales may grow by 10 per cent in FY26 and FY27.

The GST rates on small cars have been reduced from 28 per cent to18 per cent. The GST on a utility vehicle will be a flat 40 per cent, which will be less than the previous tax bracketof 43-50 per cent.