‘Motown continues to accelerate push and tax breaks in rural areas’: SIAM president

New Delhi: The auto industry expects demand to grow across all segments, including entry-level, by 2026, driven by better rural incomes and the recent rationalization of goods and services tax that has eased pressure on affordability. “The rollout of the GST 2.0 reform in September 2025 has markedly increased demand for passenger cars, commercial vehicles and two-wheelers, especially in the mass and entry-level segments, and the underlying factors suggest that this momentum may continue till 2026,” Shailesh Chandra, chairman of the Society of Indian Automobile Manufacturers (SIAM), told ET.The growth comes after weak sales in the first three quarters of 2025. Car sales were largely flat and two-wheeler volumes rose 0.9% in the first nine months of the calendar, according to Siam data. Since then, car sales grew 17.2% year-on-year in October and 18.7% in November, while two-wheeler sales rose 2.1% and 21.2% respectively.

The government has reduced VAT on cars to 18% and 40% with effect from September 22, 2025, from the previous 29-50% (28% VAT + compensation tax of 1-22%). VAT on two-wheelers up to 350cc has also fallen from 28% to 18%. Chandra said automakers are passing on tax benefits through price adjustments and targeted offers, lowering barriers to entry for new and value-conscious buyers after a prolonged period of price inflation.

Renewed consumer confidence and improved accessibility are expanding the overall market, rather than creating a shift between segments, with compact SUVs leading the way but demand improving across categories, he said. “Overall, the market is expanding rather than changing in a zero-sum manner,” Chandra said. “Affordability improvements expand options and drive growth across all price segments and body styles.”Industry executives say early trends indicate that first-time buyers will remain central to the recovery, reviving volumes and restoring confidence after years of sluggish sales at the bottom of the pyramid.

According to Chandra, both rural and urban markets are showing positive response in passenger cars and two-wheelers. “The response is better for rural passenger car markets, while for two-wheelers, growth is seen in both rural and urban areas.”

Besides GST-driven affordability gains, income tax reforms, a reduction in repo rate, healthy kharif production, strong rabi seeding and low inflation are supporting consumer confidence, “leading to healthier demand and booking trends.” Several automakers have announced production increases to meet stronger order books and pent-up demand from customers who postponed purchases ahead of the GST cut.

“Demand for two-wheelers is already robust, helped by a good monsoon and rising rural economic activity. This segment should continue to show decent growth,” Chandra said.

Demand for commercial vehicles has also started to rise in recent months, with growth spreading more broadly across segments. Medium and heavy commercial vehicles (MHCVs) are benefiting from improving freight demand, supported by increased freight movement across sectors, while light commercial vehicles (LCVs) are seeing better traction, driven by robust intra-city and last-mile logistics requirements, Chandra said.