If one factor has kept auto sales buoyant over the past nine months, it is the GST cut rolled out in the fall of 2025. Demand was expected to peter out after the initial rush; instead, buyers can’t seem to get enough — despite cars turning costlier as manufacturers pass on higher input costs, and despite a hike in petrol prices.
In September last year, companies like Maruti Suzuki cut prices by 11-12% — more than the GST benefit of 7-8% — to revive demand in some segments. Prices have since risen, but dealers aren’t short of bookings.
The numbers are telling. Passenger car sales grew a strong 16.8% year-on-year in the January-March quarter. By end-March, in the midst of the US-Iran war in West Asia, dealer inventory was down to just 28 days, against 52-53 days a year earlier. In the April-June quarter, sales rose nearly 23%.
Policy has done the heavy lifting. The income tax cuts, which made salaried incomes below Rs 12.75 lakh a year tax-free, put more money in consumers’ pockets. Cheaper credit added to affordability: the policy rate fell 125 basis points, from 6.5% in December 2024 to 5.25% in December 2025, lowering the cost of auto loans. Not surprisingly, vehicle loans have grown 12.5-18.6% year-on-year in every month between October 2025 and June this year — and above 17% every month since January.
“Recall the 125 basis points repo rate cut, liquidity turning to surplus and the GST tax rate cuts of 2025 — they have helped support consumption,” a senior corporate executive pointed out. Hiring in GCCs and start-ups has also added to demand.
The Rs 7.50-a-litre rise in petrol prices — and fears of more to come — is one reason electric car sales have gathered pace, experts believe. Registrations of electric passenger vehicles jumped 81.6% year-on-year to 151,050 units in January-June. Monthly sales crossed the 30,000-unit mark for the first time in June, at 33,524 units, holding steady in July. EV penetration hit double digits for the first time in June, at 10.6%, FADA data showed.
Two-wheelers are running well too, with volumes up 14% year-on-year in the April-June quarter. That was a moderation from the 25% growth of January-March, but a good showing given the fuel price hike and inflation.
Could the deficient monsoon spoil the ride? Economists think not. Agricultural GVA growth is likely to stay positive this fiscal, with lower crop output offset by higher livestock and fisheries output. And with agriculture now accounting for less than 30% of rural income, a weaker harvest need not dent rural consumption.
Hemal Thakkar, senior director and senior practice leader, Crisil Intelligence, expects the momentum to carry through. “Despite the relatively slow progress of the monsoon, the rural sentiment is holding up,” Thakkar told FE, adding that passenger vehicle sales should grow in double digits this fiscal.
Tomorrow: Smartphones
