GST Cut Positions India’s PV Market as World’s Fastest Growing at 8.5%: S&P

India's passenger vehicle (PV) market is set to become the world's fastest-growing, with S&P Global Mobility revising its growth forecast for the 2026 calendar year from 4.1% to a robust 8.5% YoY. This significant uplift follows recent GST reductions across various car categories, aimed at boosting consumer affordability and stimulating demand.

Puneet Gupta, Director, South Asia-Automotive Sales Forecast at S&P Global Mobility, said, "We have almost doubled... projecting to double the growth of India. And with this, India will be the fastest-growing market in the world, in terms of PV sales," Gupta stated. This translates to pushing the domestic sales volume from an earlier projection of 5 million units to approximately 5.3 million units. Gupta spoke on the sidelines of the release of S&P Global India Research Chapter’s latest report “India Forward: Shifting Horizons.”

The GST Council, earlier this month, reduced the GST rate for small cars to 18% from 28% earlier. For large cars, the GST rate was brought to a flat 40% with no cess.

According to Gupta, the GST cut directly enhances affordability, a crucial factor in India's price-sensitive automotive market, particularly for small car segments. Beyond the direct price reduction, consumers are also expected to benefit from an indirect increase in disposable income, as overall household expenditures on other goods also see a reduction due to GST cuts.

India's relatively low car penetration, at just 36 cars per 1,000 people, means there's a substantial pool of potential buyers, including those planning purchases for the future, who are now more likely to enter the market. The current climate is also expected to accelerate replacement demand, as consumers find it an opportune time to upgrade their vehicles.

While all vehicle segments, from mini cars to large SUVs, are expected to benefit, the subcompact and entry B segments (cars priced around ₹10 lakh or less) are identified as the maximum beneficiaries. "The companies are more focused towards the B segment... So that's a segment which is going to be the maximum beneficiary," Gupta added, highlighting where affordability will play the biggest role for customers.

The mini car segment, primarily catering to first-time buyers, also holds significant potential for a revival. However, its growth largely hinges on concerted efforts from key players like Maruti Suzuki, Tata Motors, and Renault to introduce new models, variants, aggressive finance schemes, and innovative marketing strategies that imbue a sense of 'pride' in ownership.

This surge in demand, however, is likely to be a short-to-medium-term phenomenon. Industry experts anticipate the next three to four months to be a boom time for consumers to purchase cars, with original equipment manufacturers (OEMs) unlikely to increase prices immediately due to anti-profiteering measures. However, the full impact of the GST cut may not be starkly visible after a year, as annual inflation hikes and the introduction of new features by OEMs are expected to push car prices upwards again from the next calendar year.