GST reforms to increase demand for automobiles, ancillary industries to benefit

New Delhi, Sep 12 (IANS) GST reforms in the automobile sector will increase demand, benefiting automobile manufacturers and ancillary industries such as tyres, batteries, glass, steel, plastics, and electronics, according to the government.

Rising vehicle sales will create a multiplier effect, boosting MSMEs across the supply chain. The rate cuts cover bikes (up to 350cc), buses, small to luxury cars, tractors (less than 1800cc), and auto parts.

The auto industry supports over 3.5 crore direct and indirect jobs in manufacturing, sales, financing, and maintenance. Increased demand will lead to new hiring in dealerships, transport services, logistics, and component MSMEs. Informal sector jobs like drivers, mechanics, and small service garages will also benefit from the GST reductions, the government noted.

“Credit-driven vehicle purchases will support retail loan growth, improve asset quality, and promote financial inclusion in semi-urban India. Rationalised GST rates provide policy certainty, encouraging fresh investments and supporting Make in India initiatives. GST cuts will incentivise replacing old vehicles with new, fuel-efficient models, promoting cleaner mobility,” it added.

Lower GST will reduce prices of bikes, making them more accessible to youth, professionals, and lower-middle-class households. It is expected to help and boost the savings of the gig workers through reduced costs and EMI for 2-wheeler loans.

Cars in the affordable segment will become cheaper, encouraging first-time buyers and expanding household mobility. Reduced GST will stimulate sales in smaller cities and towns where small cars dominate.

Higher sales will benefit car dealerships, service networks, drivers, and auto-finance companies.

The removal of the additional cess has not only reduced the rates but also makes taxation simple and predictable.

“Even at 40 per cent, the absence of cess will lower the effective tax on larger cars, making them relatively more affordable for aspirational buyers. Bringing the tax rate to 40 per cent and removing the cess will also ensure that these industries are eligible for ITC fully whereas previously the ITC could only be utilised up to 28 per cent and not for the cess component,” said the government.

India is one of the world’s largest tractor markets and GST cut will push demand in both domestic and export segments. The components for tractor manufacturing like tyres, gears etc will also be taxed at 5 per cent only.

Ancillary MSMEs making engines, tyres, hydraulic pumps, and spare parts will benefit from higher production. The GST Cut will also strengthen India’s positioning as a global tractor manufacturing hub.

Increased affordability of tractors will increase mechanisation in the agriculture sector. This will improve the productivity of staple crops like paddy, wheat, etc.

Trucks are the backbone of India’s supply chain (carry 65-70 per cent of goods traffic). Reducing GST reduces upfront capital cost of trucks, which will lower freight rates per tonne-km.

This will further lead to cheaper movement of agri goods, cement, steel, FMCG, and e-commerce deliveries and reduce inflationary pressures. The reduction will additionally support MSME truck owners, who form a large share of India’s road transport sector. Cheaper trucks will directly help reduce logistics cost, therefore improving export competitiveness. These steps further align with PM Gati Shakti & National Logistics Policy targets.

—IANS

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