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Auto Sales Surge: GST, Loans Fuel Unstoppable Momentum
31 Aug
Summary
- GST cut in late 2025 significantly boosted auto demand for nine months.
- Income tax cuts and a 125 basis point policy rate reduction aided affordability.
- Electric vehicle registrations jumped 81.6% in January-June period.
The automotive market has seen sustained sales growth over the past nine months, primarily attributed to a Goods and Services Tax (GST) reduction enacted in the fall of 2025. This boost in demand has persisted, defying expectations of a slowdown, even as manufacturers pass on increased input costs and fuel prices rise.
Government policies have played a crucial role in sustaining this growth. Income tax cuts effectively increased disposable income for many consumers, while a substantial 125 basis point reduction in the policy rate from 6.5% to 5.25% between December 2024 and December 2025 lowered the cost of auto loans. Consequently, vehicle loans have experienced robust year-on-year growth ranging from 12.5% to 18.6%.
A significant factor contributing to the automotive boom is the surge in electric vehicle (EV) sales. Registrations for electric passenger vehicles increased by 81.6% year-on-year to 151,050 units in the January-June period of 2026. This trend is partly fueled by a Rs 7.50-a-litre rise in petrol prices, pushing consumers towards greener alternatives.
While a deficient monsoon is a concern, economists anticipate that overall agricultural gross value addition will remain positive due to offsetting growth in livestock and fisheries. Furthermore, with agriculture comprising less than 30% of rural income, a weaker harvest is unlikely to significantly dampen rural consumption, suggesting continued positive sentiment for the automotive sector.
