India will continue to be a small car market. Small cars (hatchbacks and compacts) in the price range of Rs.5-8 lakh account for a little over three-fourths of the car bazaar.  And it’s this price-sensitive segment carmakers were apprehensive about in the run-up to the announcement on goods & services tax rates. As it turns out, the GST Council did well to make the transition revenue neutral and small car buyers will not see much difference in prices come July 1. A GST of 28% plus 1% cess for petrol cars (and 3% for diesel) won’t be much of a change from the current effective tax of 29% on small cars (VAT plus excise plus cess). More significantly, though, GST could well provide a fillip to the aspirational segments — mid-sized sedans and sports utility vehicles (SUVs) — especially at the luxury end — which combined account for just 25-30% of the market. The difference between GST rate (plus cess) and current value-added tax regime is almost 10 percentage points, which will go some way in making the premium hot rods more accessible to buyers. GST may well go on to alter contours of the car market, so far dominated by hatchbacks and compacts. Expect more buyers to gravitate towards mid-size sedans and SUVs.  If there is a concern, it’s that state governments may impose additional duties to make up for revenue loss; if that happens, it will be contradictory to the GST motto of one nation, one tax.

(Economic Times)