India GST Cuts Aid Automakers Against Rising Commodity Prices

Recent Goods and Services Tax (GST) cuts in India are providing a crucial shield for car manufacturers grappling with increasing commodity prices. This policy adjustment enables major players like Mahindra & Mahindra, Tata Motors, and Hyundai Motor India to employ strategies that limit significant product price increases, helping to maintain current market demand.

Carmakers are strategically combining internal cost optimization efforts with selective price adjustments to absorb the impact of these volatile commodity costs. This approach marks a shift, allowing them to navigate price pressures differently from previous cycles.

Policy’s Role in Cost Absorption

The updated GST 2.0 framework significantly lowered tax rates across various vehicle segments. This reduction has directly contributed to a noticeable rebound in passenger vehicle sales across the country.

• Small cars and SUVs under four meters saw tax rates drop from 28% plus cess to 18%.
• Large SUVs and luxury vehicles experienced a reduction from a peak of 50% to approximately 40%.
• Factory dispatches surpassed 400,000 units in six of the eight months following the GST cuts.
• Leading carmakers project over 10% sales growth in FY27, even from a high comparative base.

Industry Strategies for Managing Pressures

Despite the GST cushion, automakers continue to refine their internal cost structures and make targeted price adjustments to manage ongoing commodity shocks. Global disruptions, such as those stemming from the Iran war, continue to exert significant pressure on raw material costs.

• Mahindra & Mahindra increased prices by an average of 5.2% across its petrol, diesel, and electric SUV range in the June quarter.
• Tata Motors Passenger Vehicles reported commodity pressure negatively impacted its India business profitability by 4.5% of revenue in the June quarter.
• Tata Motors anticipates an additional 3% increase in commodity pressure during the September quarter.

Hyundai Motor India is also actively implementing a broad cost optimization strategy, which includes carefully calibrated pricing alongside increased localization efforts. Enhancing local sourcing helps insulate production from international supply chain volatility and currency fluctuations.

• Hyundai Motor India’s localization level has risen to 83%, up from 77-78% a few years prior.
• The company aims to achieve 90% localization by 2030.

While the GST reductions offer considerable relief, the industry expects a moderation in overall growth from October onwards. Carmakers will continue to balance policy benefits with their own operational efficiencies to sustain market performance.