The demand for passenger vehicles (PVs) is expected to sustain even beyond the ongoing festival season as a new set of customers, those who gained confidence to buy cars following the recent GST rate cuts, will begin to visit dealerships now, said president of the Society of Indian Automobile Manufacturers (SIAM), on Wednesday.
From September 22 onwards, small cars (less than four metres in length with engines up to 1,200 cc for petrol and 1,500 cc for diesel) attract 18 per cent GST, down from 29–31 per cent earlier, including cess. Under the new GST regime, larger cars (over four metres with engines above 1,500 cc and ground clearance above 170 mm) are now taxed at 40 per cent instead of the earlier effective 50 per cent. The Centre has also withdrawn the compensation cess.
Speaking at a press conference after the release of SIAM’s monthly sales data, he said that many two-wheeler owners are now confident about upgrading to a “reasonably sized car,” buoyed by lower tax rates and better financing options.
“I am not saying an entry-level car, but a reasonably sized car… We’ll see in the coming months whether the small car segment (sedans and hatchbacks) will grow or not. It is too early to say right now,” he said. Small car sales in India have been declining for several years as customers have shifted decisively towards SUVs.
He added that the SUV segment, which had expanded rapidly over the past few years, is now reaching a point of equilibrium. “The share of SUVs in total car sales is now 56 per cent, up from about 29 per cent five-six years ago. The product cycle is more stable now, and therefore, you are seeing SUV growth mimic the overall PV industry,” he said.
He expressed optimism that demand would continue beyond the festival period as there could be unserved or delayed demand from new buyers. “There might be unserved demand that might flow outside of the festival season. This means the pent-up demand might remain outside the festival season. I am optimistic about the demand sustaining. I see that this would continue,” he said.
He also indicated that the “real GST 2.0 customer” is yet to fully enter the market. “What you are seeing (right now in dealerships) is that somebody who was already in the market had a certain budget, possibly the person has upgraded to a higher-segment car or a more feature-rich variant. The real GST 2.0 customer will start coming from now on,” he said, adding that the combination of these new buyers and the clearing of logistical backlogs “should sustain the growth momentum.”
SIAM data showed that automakers dispatched 372,458 PVs to dealers in September 2025, a year-on-year increase of 4.4 per cent.
On whether the reduction in GST on internal combustion engine (ICE) vehicles could shift demand away from electric vehicles (EVs), he said there were no such signs yet.
“From the PV industry perspective, we are not seeing a shift from electric to ICE cars just because the GST rate on the latter has gone down. You might see some month-on-month sizeable increase in sales of ICE cars, but that would largely be due to pent-up demand,” he explained.
He also said that rural markets have started showing strong growth after a good monsoon season, while urban demand has remained steady. “Urban was pretty stable. Rural, off late, has started showing signs of strong growth. The monsoon has been good. Rural areas would be showing robust growth in the coming months,” he noted.
