Industry Odisha Bureau, Sep 26: Car prices have risen about 3 per cent in a year. Yet GST cuts and faster income growth have kept vehicles affordable. Passenger vehicle sales have strengthened across segments.
Cars in India cost more than a year ago. Yet more buyers appear able to afford them.
Prices have risen about 3 per cent over the past year. Over the same stretch, passenger vehicle sales have cranked up. Two forces explain the gap: GST gains and a favourable income twist.
Shailesh Chandra, managing director of Tata Motors Passenger Vehicles, said buyers’ purchasing ability has improved. He linked that shift to the GST 2.0 reforms of September 2025.
GST Cuts Reshape Car Affordability
The reforms lowered tax on qualifying cars below four metres. Their GST rate fell to 18 per cent from 28 per cent. Larger vehicles moved to an effective 40 per cent rate. Previously, they faced 43-50 per cent, including cess.
Costs then moved the other way. The West Asia crisis pushed input costs sharply higher. Nearly all carmakers responded with three or four price hikes this year.
Even so, cumulative increases by any single carmaker stayed below 5 per cent, Chandra said. Automakers passed only part of higher commodity costs on to buyers, he added. In his view, the GST affordability gain remains largely intact.
Disposable Income Outpaces Car Prices
Income growth has strengthened that cushion. Government data show gross national disposable income, or GNDI, rose 10.9 per cent in FY24. It grew 10.2 per cent in FY25 and 9.1 per cent in FY26.
Car prices rose about 3 per cent over the past year. When incomes grow faster than prices, relative affordability tends to improve.
GNDI is an economy-wide measure, however. It does not reflect wage growth or every household’s finances.
Lower-Tax Cars Lead Sales Growth
The sales response has been sharpest in the 18 per cent GST category. Between April and August, sales in this bracket rose 29 per cent year-on-year. Volumes reached 1.24 million units, according to industry data.
The category includes the Maruti Alto, WagonR, Tata Punch and Mahindra Bolero. The growth rate applies to the category, not each model.
Vehicles in the 40 per cent bracket also grew about 21 per cent. That segment includes models such as the Hyundai Creta and Kia Carens. Growth in both brackets suggests tax relief is reaching buyers across price points.
SUVs Lead, Sedans Find New Buyers
Consumer preference remains tilted towards SUVs, Chandra acknowledged. But hatchbacks and sedans have also posted significant volume growth.
Compact sedan sales rose to 350,000 units last fiscal year. They stood at about 270,000 units in FY25. Compact sedans make up more than 85 per cent of India’s sedan sales.
Hatchbacks and sedans together hold about 29 per cent of domestic car sales. Hatchback share has held steady at 20-21 per cent, even as volumes grew.
Chandra believes limited sedan choice may push some buyers towards SUVs. Tata Motors says it plans to offer wider choice across segments.
Festive Demand Meets Cost Pressure
Tata Motors expects industry sales to grow about 10 per cent during October-March. It aims to outpace that, citing new products and a multi-powertrain strategy. The forecast is the company’s expectation, not a guaranteed outcome.
Cost pressures also remain. Absorbing commodity costs strains carmakers, while further hikes could erode affordability. For now, tax relief and income growth are keeping car sales in India moving.
