Auto discounts may shrink as GST reforms set to spur demand: Report

As the revised Goods and Services Tax (GST) reforms are set to come into effect on September 22, a Motilal Oswal report suggests that automakers are likely to either reduce discounts or stop offering them altogether, as the new rate cuts are expected to lift demand.

 

The report said that with a pick up in demand, discounts can gradually be reduced across categories, thereby helping drive margin expansion for automakers.

 

Anticipating a recovery in demand and improved earnings, Motilal Oswal has raised its FY26 and FY27 volume growth projections across all key automobile segments in its latest report. It further suggests that the premiumisation trend, where consumers increasingly opt for higher-end models, is likely to continue.

   

The demand for small cars is expected to rise from a very low base, which will contribute to the overall market recovery.

 

Motilal Oswal revises growth projections

The revised growth projections, according to Motilal Oswal's report, are as follows: 

- The sales of two-wheelers are expected to grow by four per cent in FY26 and 7.5 per cent in FY27, as compared to the previous year forecast of one per cent and five per cent.

 

- Passenger vehicle volumes are estimated to rise by three per cent and eight per cent in FY26 and FY27, respectively. The revised estimate is higher than the previous one for passenger vehicles, which stood at two per cent and four per cent.

 

- Commercial vehicles' growth forecast is at five per cent and seven per cent in FY26 and FY27, respectively, as compared with two per cent and four per cent earlier.

 

- Tractor sales are likely to rise 10 per cent in FY26 and six per cent in FY27, from the earlier eight per cent and five per cent. 

 

GST reforms driving positive outlook: Motilal Oswal 

The upbeat outlook is largely driven by the GST Council’s move to cut tax rates on most auto segments to 18 per cent from 28 per cent, effective September 22, 2025. For SUVs longer than four metres, the GST rate has been lowered to 40 per cent (excluding cess) from the earlier 43–50 per cent range. Tractors and their components will now be taxed at 5 per cent, compared with 12–18 per cent earlier.

 

Along with the tax cuts, a normal monsoon, lower interest rates—down by nearly 100 basis points this year—and recent income tax concessions are expected to give a strong lift to demand in the coming festive season.

 

 

Automakers announce price reduction 

Most automakers announced a reduction in their prices after the GST reforms, leading to some of the popular models becoming significantly cheaper. Business Standard recently reported that Maruti Suzuki India is slashing its prices by up to ₹1.3 lakh.

 

According to Partho Banerjee, senior executive officer, Marketing and Sales, MSIL, "In Alto K10, the reduction is in the range of 10.6-20 per cent; in S-Presso, 12.6-24 per cent; Celerio, 8.6-17 per cent; Wagon R, 8.7-14 per cent. This is a double bonanza for the festival season to accelerate motorisation in the country.”

 

On the other hand, Tata Motors and Mahindra & Mahindra cars have seen a price reduction of up to ₹1.5 lakh.

 

The biggest slash in the prices has been that of Toyota’s Fortuner, which has gone cheaper by up to ₹3.49 lakh