Auto sales growth to continue till FY29 supported by GST 2.0, income tax cuts & upcoming 8th pay commission: Report

NEW DELHI: The demand upcycle in the passenger vehicle (PV) segment could continue up to FY29, supported by GST 2.0 reforms and a strong outlook for the automobile sector, according to a report by Nuvama.

The report highlighted that volumes in the PV segment saw their trough in FY21. The segment crossed its previous peak in FY23 and is now on track to create new peaks. It stated, “PV is at a mid to advanced stage of the upcycle. Average/maximum duration of upcycle as per historical data is six/eight years; hence, upcycle can continue up to FY27/FY29”.

On the broader industry outlook, the report said that healthy demand is expected across two-wheelers (2Ws), tractors, and PVs. This momentum is being driven by GST cuts of up to 13 per cent, the introduction of new products, the upcoming pay commission for government employees, possible interest rate cuts, and ongoing income tax reforms.

Sales volumes across automobile segments have been riding an upcycle in the past three to four years. The report expects the upward momentum to continue, moving towards new peaks in another two to three years, in line with the average trough-to-peak duration of the past 30 years.

For 2Ws, the report noted that the volume trough was in FY22. The segment is expected to surpass its previous peak by FY26 and then move towards creating a new peak in the following years. With historical data suggesting that upcycles last a minimum of six years and an average of eight years, the current cycle in 2Ws could continue till FY28-FY30, placing it at a relatively nascent stage.

GST 2.0 has also provided a major boost by reducing taxes across key vehicle categories. The report said GST rates for 2Ws (below 350cc), PVs (below 4 metres and <1200cc for petrol/<1500cc for diesel), 3Ws, CVs, and components have been reduced from 28 per cent to 18 per cent.

An important highlight has been the cut in GST on tractors and tractor parts from 12 per cent and 18 per cent to 5 per cent each, which also corrects the earlier inverted duty structure. Furthermore, no cess is being levied, and GST rates for EVs remain unchanged.

According to the report, these reforms, along with improving economic conditions, will support sustained demand across segments, keeping the automobile sector on a strong growth track in the coming years. (ANI)