GST Reforms to Drive Auto Demand; Ancillary Industries Set to Gain

New Delhi- The government has said that recent GST reforms in the automobile sector will spur demand, boosting not only vehicle manufacturers but also ancillary industries including tyres, batteries, glass, steel, plastics, and electronics.

The expected rise in vehicle sales is likely to generate a multiplier effect across the supply chain, benefiting MSMEs engaged in auto components. The GST rate cuts apply to bikes (up to 350cc), buses, small to luxury cars, tractors (below 1800cc), and various auto parts.

Currently supporting over 3.5 crore direct and indirect jobs, the auto sector could see fresh hiring in dealerships, logistics, transport services, and component MSMEs. Informal sector jobs such as drivers, mechanics, and small garages are also expected to benefit.

According to the government, “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, encourage investments, and support Make in India initiatives.” Lower GST will also incentivise the replacement of old vehicles with newer, fuel-efficient models, promoting cleaner mobility.

For two-wheelers, reduced GST will make bikes more affordable for youth, professionals, and lower-middle-class households, while gig workers stand to gain from lower EMIs and operating costs. Affordable cars are also expected to attract first-time buyers, particularly in smaller towns and cities.

The reforms also include the removal of additional cess, which simplifies taxation and allows full Input Tax Credit (ITC). “Even at 40 per cent, the absence of cess will reduce the effective tax on larger cars, making them more affordable for aspirational buyers,” the government noted.

India, one of the world’s largest tractor markets, will benefit from GST cuts in both domestic and export segments. Tractor components such as tyres and gears will now attract just 5 per cent GST. This is expected to boost agricultural mechanisation, improve crop productivity, and reinforce India’s position as a global tractor hub.

In road transport, trucks—responsible for carrying nearly 70 per cent of India’s goods traffic—will also become cheaper, reducing freight rates per tonne-km. This will lower logistics costs, make the movement of agri products, cement, steel, FMCG, and e-commerce deliveries more affordable, and help contain inflation.

Cheaper trucks will also support MSME truck owners and enhance India’s export competitiveness, aligning with the PM Gati Shakti initiative and the National Logistics Policy.

With inputs from IANS