Hailing Prime Minister Narendra Modi’s announcement of reducing the GST rates in the automobile sector is a mutually beneficial, win-win situation for all stakeholders in the industry, Nitin Gadkari, Union Minister of Road Transport and Highways, said on Friday.

“Our government, under the leadership of Prime Minister Modiji, has made the decision to reduce the GST rates, and that is exactly a good incentive for all of you (the automobile industry),” Gadkari said at the 65th Annual Session of the Automobile Components Manufacturers Association (ACMA) in New Delhi. 

He added that the GST reforms will increase the market potential, boost demand, and increase the size of the automobile industry. “It is a mutually win-win situation,” he averred.

According to the minister, consumers are receiving significant price cuts, and automakers are expected to see an increase in demand. Dealers are getting increased sales, and capital markets are seeing a boost in auto stocks. For the government, this results in increased consumption and, therefore, more taxes. MSMEs and startups get an opportunity for innovation, and ‘Make in India’ receives a boost in local manufacturing.

Concurrently, the Ministry of Road Transport and Highways has issued a press communique on Friday, highlighting the tax relief for two-wheelers, cars, tractors, buses, commercial vehicles, and auto components.

The reduction in GST for two-wheelers with an engine capacity of less than 350cc—from 28% to 18%—is going to provide affordable mobility for youth, rural households, and gig workers. The reduction of GST in small cars to 18% will enable an increase in purchases made by first-time car buyers and give a fillip to car sales in small towns and the hinterlands, according to the ministry.

For large cars, the reduction in GST to a flat 40% rate is going to result in simpler taxation, full ITC eligibility, and enable affordability for aspirational buyers. The reduction of GST on tractors from 12% to 5% is going to boost farm mechanisation and augment India’s status as a global tractor hub. 

The reduction in GST on buses with more than 10 seats from 28% to 18% is going to support fleet expansion and create affordable public transport. A similar reduction in GST for commercial goods vehicles will result in lower freight costs, reduced inflationary pressures, and a stronger supply chain.

Bringing auto components under a flat rate of 18% GST is going to give a fillip to ancillary MSMEs and boost domestic manufacturing. Insurance for goods carriage now attracts a 5% GST rate with ITC, which is going to support logistics and reduce operating costs for transporters.

The ministry also said that there are other indirect benefits to the GST rate reduction, including over 3.5 crore jobs in the auto and allied sectors that were supported, a multiplier effect on small businesses in tyres, batteries, glass, steel, plastics, and electronics, and more opportunities for drivers, mechanics, gig workers, and service providers.

According to the ministry, it will also reduce freight rates, strengthen agriculture, FMCG, e-commerce, and industrial supply chains, and improve India’s export competitiveness under PM Gati Shakti and the National Logistics Policy.