Companies may fire up output by 25% to feed festive frenzy

Car, two-wheeler and consumer electronics makers in India are increasing production by as much as 25%, anticipating that GST cuts on various products will trigger a surge in demand that will be sustained at least until Christmas. Small car makers are even more optimistic, expecting demand to remain buoyant for a longer period.

The cuts in goods and services tax (GST), announced late Wednesday, are pushing auto companies, especially those making small cars, to alter production schedules. They are hoping that potential car buyers will start flocking to showrooms from September 22 when the new rates are implemented, sparking a rush of new orders, especially benefiting the small car segment facing five straight years of slowdown.

Companies having stocks for products like large-screen TVs where the GST cut is the steepest will gain the most in the coming 2-3 months, according to Satish NS, president at Haier Appliances India. “Consumers will upgrade from 32-inches to a larger screen as the price gap will narrow. So, we are expanding 43-inch and above television production by over 20%,” he said.

In the automobile industry, passenger vehicle retail sales are expected to stay robust for at least 4-6 weeks from September-end onwards, said a senior executive, on condition of anonymity. “Production will definitely go up. Companies like Maruti Suzuki, Hyundai, and Tata Motors who have small cars on their portfolio should gain and are expected to ramp up utilisation,” he said.

Automakers are increasing production though wholesales or factory dispatches are likely to be deferred till the new GST rates are effective, another executive said. He however expressed confidence that automakers should be able to recover the lost sales in the festive season.

The GST Council, the apex decision-making body on the indirect tax, announced reduction of taxes on small cars to 18% from 29-31%; and motorcycles with engine capacity less than 350cc to 18% from 28%. Larger utility vehicles and luxury cars will get more affordable, attracting a 40% tax compared to 43-50% currently. The GST on air conditioners, televisions of all sizes, monitors, projectors, and dishwashers has been reduced to 18% from 28%.

The short-term outcome of the GST cut will be a spike in festive sales with growth in overall volumes for large-screen TVs and ACs, said Sunil Vachani, chairman of Dixon Technologies, India’s largest homegrown electronic contract manufacturer. “The penetration for these is very low at 12-20% so the potential is huge,” he said, noting that the company will expand production in line with demand. Uncertainty over the timeline in GST revision disrupted production planning schedules at automakers in August, said Gaurav Vangaal, associate director at S&P Global Mobility. He said many carmakers paused wholesale dispatches, causing congestion at stockyards.

“August, which was expected to show positive output, will now likely reflect negative production numbers. But production is likely to go up now with the rate cuts expected to spur robust demand,” he said.

Maruti Suzuki, Hyundai Motor India, and Mahindra & Mahindra cut vehicle dispatches from factories to dealerships in August to offset the impact of any potential loss due to transition to the new GST rates. Maruti Suzuki cut production by 6% to 158,202 units last month. The company already has pending orders for 150,000 cars as customers made bookings during Onam and Ganesh Chaturthi festivals but delayed taking delivery anticipating the rate cuts.

Small car sales should start rising following the GST cuts, said RC Bhargava, chairman, Maruti Suzuki. “This is a long-term measure. The festive season is already upon us and you can only do so much in such a short span of time. But with this rate cut, we expect small cars to grow by 10% a year and the overall car industry by 7-8% every year going forward,” he said.

According to Kamal Nandi, head of appliance business at Godrej Enterprises, the trade may start stocking ACs from October--instead of from December onwards as is the norm--for the 2026 summer season, as some purchases may get advanced due to lower prices, promoting factories to run at full capacity to cater to the increased demand.

Some electronic companies are however cautious, expecting demand to ease and start normalising after Christmas. A chief executive of a leading electronic multinational said the impact might be short-lived if the GST cuts for home appliances in 2018 are an indicator when the demand spike was only for two months. “Sales had already slowed from mid-August and will remain so till September 21. So, this one-month pent up demand, Diwali and wedding season will boost sales till December quarter,” he said.

Jitin Makkar, senior vice president at rating agency Icra, too emphasised that a long-term sustenance in auto sales growth will hinge on income-related sentiment and fuel prices.

However, Saharsh Damani, CEO at the Federation of Automobile Dealers Associations, said “if prevailing promotional offers of about 7-8% continue and the rate cut adds another 7-8% ex-factory, customers could see an effective relief of roughly 15-16%—a powerful demand stimulus”. “Combined with recent personal income-tax changes that have left more disposable income in the hands of middle-income households, we expect a fresh cohort of buyers to enter the market and existing customers to advance purchases,” he said.