GST Cut Triggers 30% Surge in Small Car Sales, Reshaping India's Auto Market

India's automotive industry is witnessing a dramatic shift as small car sales surged 30% following the government's reduction in Goods and Services Tax (GST) on compact vehicles, according to Maruti Suzuki Chairman R C Bhargava at the company's Q2 and H1 financial results press conference.

The GST revision, announced by the Prime Minister on August 15, has "completely changed people's perception," Bhargava said, noting that customers who had stayed away from the market are now returning in significant numbers.

During the festive period in October, Maruti Suzuki's overall retail sales grew 20%, but vehicles in the 18% GST category—comprising cars under four meters—grew at 30%. In contrast, larger vehicles in higher tax brackets grew by only 4-5%.

"The perception some had—that aspirations of all Indians have changed, and nobody wants to buy small cars—has proven to be incorrect," Bhargava stated. "There are still many customers who prefer small cars as a much better form of personal commutation."

The company recorded its highest-ever retail sales during the festive period, driven largely by small car sales. Maruti Suzuki currently holds a 69% market share in the 18% GST category, which the chairman expects to increase further.

The tax reduction has particularly benefited entry-level cars like the Alto, S-Presso, WagonR, and Celerio. Their contribution to Maruti's retail sales portfolio jumped from 16.7% between April and September to 20.5% after the GST revision.

Bhargava attributed the previous decline in small car sales entirely to affordability issues. "Households earning above ₹15 lakh a year form only about 10-12% of the total population. The remaining 85% have much lower income levels," he explained.

The company currently has 350,000 bookings, with 250,000 in the 18% GST category. Production teams have worked three consecutive Sundays in October to meet demand, with several models still facing waiting periods of 2-3 weeks depending on color and variant.

Looking ahead, Bhargava expects the industry to record overall growth of around 6% in the second half of the fiscal year, a significant turnaround from the 1.44% degrowth in the first half. He anticipates that small car sales will continue to grow in double digits "for some period to come."

The chairman suggested that other automakers may now revise their product strategies based on the renewed demand for small cars. Maruti itself has increased manufacturing flexibility to better respond to changing customer preferences.

"I believe the government will recognize that lowering tax rates does a substantial amount of good in respect of production increase, in terms of people getting more convenient means of transport, and ultimately in raising the tax collections of government also," Bhargava said.