GST rate cut will revive India’s small car market: R.C. Bhargava

R.C. Bhargava, the chairman of Maruti Suzuki India Ltd , is hopeful of a revival in small car sales if the GST Council slashes the Goods and Services Tax on small cars to 18% from 28% currently.

“We are hopeful that the proposal which the prime minister made will result in the GST on small cars reducing to 18%. But we have to wait till the official announcement is made,” Bhargava said while addressing the annual general meeting of Maruti Suzuki.

Entry-level cars have seen a decline in demand over the past few years as potential buyers no longer find them affordable. Domestic sales of cars in the mini segment — which industry body Society of Indian Automobile Manufacturers (SIAM) classifies as entry-level hatchbacks up to 3.6 metres in length and one litre engine displacement — fell 12.4% year-on-year to 1.33 lakh units in the financial year 2024-25 from 1.52 lakh units in FY24. The drop was even bigger at 40% in the previous year.

Higher prices of small cars have led to a slowdown in sales following India’s move to adopt stricter car emission and safety standards. “In 2018-19, it was decided that European emission and safety standards would be introduced in India. And that has been the reason why the downtrend in small cars and the overall slowing down of the car industry happened,” Bhargava said, adding that many people at the lower-end of the pyramid who were using two-wheelers were unable to buy cars.

“We believe that we need to balance the situation in a manner that users of two-wheelers move to safer cars because two-wheelers are the most risky in terms of safety,” he stated.

Calling Prime Minister Narendra Modi's announcement of GST rate rationalisation a major reform, Bhargava said he believes it will lead to India's economy growing much faster and employment increasing accordingly.

“It is a matter of happiness that the government has recognised that there are a large number of consumers at the lower end of the market and they need some help in these difficult times," Bhargava said, lauding the government for proposing lower GST on small cars.

Considering that a large percentage of the population is dependent on two-wheelers for personal transportation, the high risk and discomfort associated with these vehicles, there is a need to consider the introduction of cars that would provide an alternative to two-wheeler owners, said Bhargava.

The chairman of India’s biggest carmaker said Japan solved a similar problem by introducing the Kei cars in the 1950s. “They are smaller, have lower safety regulations and are subject to lower taxes than other cars. I think India needs to consider something similar to that,” said Bhargava.

“My hope and expectation is that we will see a revival in the small car market. We will see an overall faster growth of the car industry. We will see more industrial activity,” the Maruti Suzuki chairman said.

All this, according to Bhargava, is much needed in the current geopolitical scenario when 50% US tariffs are creating a difficult situation in parts of the economy. “We are all aware of the global uncertainty which has been caused in recent months. President Trump has, in many ways, forced nations to rethink conventional policies and relationships. The use of tariffs in diplomacy is being seen for the first time. Our tariff rate has gone up to 50%. It’s our duty as Indians to do our very best to support the government and maintain dignity and respect and not give in to any kind of bullying in this manner. The nation has to stand united at this point of time,” he said.