5-6% growth in two-wheeler sales expected after GST cut
What's the story
CRISIL Ratings has predicted a 5-6% growth in two-wheeler sales for the current fiscal year. The forecast comes after the Goods and Services Tax (GST) Council decided to rationalize tax rates. The move is expected to give a much-needed boost to the domestic automobile industry, especially two-wheelers and passenger vehicles (PVs), which together account for nearly 90% of market volume.
Demand surge
Sluggish sales in 1st quarter
The reduction in GST rates is expected to trigger a 200 basis points (bps) increase in two-wheeler demand and a 100 bps rise for PVs, CRISIL said. The forecast comes after the first quarter of this fiscal year saw sluggish sales in the two-wheeler segment, particularly among entry-level commuters. This was mainly due to disruptions caused by On-Board Diagnostics II (OBD2) norms and an early monsoon that affected rural activity and consumer sentiment.
Modest growth
Modest growth expected in PV segment
Unlike the two-wheeler segment, CRISIL expects a more modest growth of 2-3% in the PV segment for this fiscal year. Affordability concerns, rare-earth mineral shortages, and purchase deferrals ahead of GST cuts have all contributed to subdued sales during the June-August period. However, beyond reviving demand, simplified slabs will also ease compliance and reduce logistics costs through seamless interstate taxation.
Price reduction
Vehicle prices expected to drop by ₹30,000-₹60,000
With the GST cut fully passed on, vehicle prices are expected to drop by 5-10% (₹30,000-60,000 on small PVs; ₹3,000-7,000 on two-wheelers). "With the rate cut coinciding with Navratri and festive season, sentiment would get a timely boost," said Anuj Sethi from CRISIL Ratings.He added that new launches, softer interest rates, and improved affordability should drive a stronger second half for the automobile sector.
GST impact
GST rates on small PVs and 2-wheelers slashed
Under the revised GST structure, rates on small PVs, two-wheelers up to 350cc (nearly 90% of segment sales), commercial vehicles (CVs), and three-wheelers will be reduced to 18% from 28%. Mid and larger PVs will also see a reduction of 3-7%. Tractors will benefit from a reduction to 5% and 18% from previous rates of 12% and 28%, respectively.