Maruti Suzuki bets on GST cut to revive small car demand, cushion Trump tariffs

Maruti Suzuki, India’s largest carmaker, expects the proposed GST reforms to revive demand for small cars, supporting growth in the broader automotive market and helping cushion the impact of high US tariffs being felt in some other sectors of the economy.

“My hope and my expectation is that subject to approvals by the GST Council, we will see a revival of the small car market, overall faster growth of the car industry, more industrial activity, and larger generation of employment opportunities,” RC Bhargava, chairman, Maruti Suzuki, said at the company’s annual general meeting on Thursday. “I think all of this is needed in the current times when the tariff problems are creating a difficult situation in other parts of the Indian economy.”

ET reported earlier this month that the GST Council, the apex decision-making body for the indirect tax, is slated to meet September 3-4, to discuss lowering the levy on small cars to 18% from 28%.


Such a move would particularly benefit lower-end consumers, according to Bhargava. “We are hopeful that the proposal which the Prime Minister made (on August 15 from the Red Fort) will result in the GST on small cars reducing to 18%. But we have to wait till the official announcement is made,” he said.

Small cars up to 4 metres and engine capacity up to 1,200 cc across petrol, CNG, or LPG currently attract 28% GST and 1% cess. Larger cars and SUVs are likely to face the special rate of 40%, as per the proposal which will be taken up by the GST Council.

Currently, these vehicles attract 43-50% tax, which includes GST and cess.

Bhargava said the pace of Maruti’s car sales growth and capacity expansions would strongly hinge on the GST Council decision.

Maruti Suzuki has firmed up an investment of Rs 70,000 crore to double capacity, strengthen infrastructure, and bolster R&D over the next 5-6 years.

Sales of small cars spanning hatchbacks and compact sedans have been declining in India for several years. Overall passenger vehicle industry sales growth is being solely driven by strong SUV demand.

Compact car and hatchback sales fell 13% to about a million units in FY25, less than half that of SUV sales of about 2.35 million, industry data accessed by ET showed. SUV sales rose 10% in FY25. The share of small cars in the overall PV market fell for the fifth straight year to a low of 23.4% in FY25. It dropped further to 21% in the first four months of this fiscal year.

Overall, passenger vehicle sales fell 1% on-year to 1.35 million units during April-July 2025, show data from the Society of Indian Automobile Manufacturers (SIAM).

Industry veterans attributed the decline to a 30-40% jump in small car prices over the past five-six years due to tighter safety and emission norms. Bhargava confirmed that the introduction of BS-6 norms in 2018-19 had raised vehicle costs, weighing on small car sales, and making it harder for two-wheeler owners to upgrade to safer cars.

To address this affordability gap, Bhargava pointed to Japan’s experience with Kei cars in the 1950s. These were ultra-compact cars, designed with lighter safety regulations and lower taxes, which gave scooter owners a low-cost alternative to upgrade to four-wheelers. “I think India needs to consider something similar to that,” he said.

Overall, Bhargava held that reducing GST on small cars will not only help consumers at the lower end of the market but could also enable counter the economic strain from US tariffs.

“We are all aware of the global uncertainty which has been caused in recent months. President Trump has in many ways forced nations to think about conventional policies and relationships, in particular, the use of tariffs in diplomacy is being seen for the first time. Our tariff rate has gone up to 50%. And I believe it is our duty as Indians to do our very best to support the government and maintain our dignity and respect and not give in to any kind of bullying in this matter. The nation has to stand united at this point in time,” he said.

Bhargava also pressed for parity between electric and hybrid cars under the GST framework. “The taxation on electric cars and hybrid cars in Europe and the US is very similar,” he said. In India, electric cars are currently under the 5% GST slab while hybrid cars are charged 28%. “In India we believe that there is a need for technologies to be encouraged by the taxation system, not only EV technology but any technology which leads to cleaner cars, reduction of oil consumption, reduction of pollution in the air and which leads us towards net zero. All technologies, depending on their contribution towards moving to net zero, should be incentivised,” he said.

On supply chain concerns, Bhargava flagged risks from restrictions on rare earth magnets, calling it “both a warning signal”, though adding that with government intervention, the issue may be resolved soon. “Our government has entered into a landmark free trade agreement with the UK and this could form a template for future agreements,” he said.