GST cut to increase 200 bps volume in two-wheelers, 100 bps for PVs: Crisil

Two-wheelers are expected to see a demand increase of 200 basis points, and passenger vehicles are expected to witness a demand increase of 100 basis points after the GST rate cut, according to ratings agency Crisil.

Crisil describes the GST council’s decision to move to a two-rate structure of 5% and 18%—effective September 22—as a timely move that will revive demand for automobiles. For the uninitiated, two-wheelers and passenger vehicles make up 90% of the domestic automobile industry’s volume.

With the GST rate cut, two-wheeler sales volumes are expected to increase 5–6% year-on-year, whereas sales of passenger vehicles are expected to increase between 2 to 3%, the note from Crisil adds. However, a caveat that Crisil adds is that the unutilised tax credits will affect dealers’ working capital during the festive season.

“With the GST cut fully passed on, vehicle prices are expected to drop 5-10% (₹30,000–60,000 on small PVs; ₹3,000–7,000 on two-wheelers),” said Anuj Sethi, Senior Director, Crisil Ratings. Sethi also added that the rate cut coincides with Navratri and the festive season at large, and the sentiment would get a timely boost. “Coupled with new launches, softer interest rates and improved affordability, this should drive a stronger second half for the automobile sector.”

The GST reforms extend beyond the revival of demand, as simplified tax slabs, according to Crisil, will streamline compliance and lower logistics costs, facilitated by smoother taxation across states. This would support profitability across the value chain, according to Crisil.

According to Poonam Upadhyay, Director, Crisil Ratings, higher volumes will improve capacity utilisation and operating leverage, translating to stronger cash flows and healthier margins for automakers, which will reinforce their already stable credit profiles. “On the distribution side, elevated PV inventory of 50-55 days should ease after the GST cut. Even a modest recovery in PV demand will aid inventory correction, ease working capital pressures and support dealer cash flows.”

Two-wheeler sales have been a laggard in the first quarter, with the entry-level, commuter segment under pressure, Crisil says. The sales have been disrupted by regulatory disruptions such as the implementation of the On-Board Diagnostics II, and early and heavy onset of southwest monsoon disrupting rural activity and taking a toll on demand.

Sales of small cars were also in the slow lane between June–August 2025, largely because of affordability issues. The shortage of rare-earth magnets hurt the sales of other segments of passenger vehicles, and car buyers baulked at purchases, anticipating GST rate cuts.