Finance Minister Nirmala Sitharaman is all set to chair the 41st GST Council meeting today amid talks of reducing GST rate on two-wheelers. Her remarks that two-wheelers merit a reduction in GST rates has given hope to the manufacturers that a positive decision will be taken by the council.
The reduction in GST rate on two-wheelers, which stands at 28 per cent currently, has been a long-standing request from the manufacturers. Last year, the country's largest two-wheeler maker Hero MotoCorp had urged the government to consider a phase-wise reduction in GST on the segment, starting with bringing bikes up to 150 cc into the 18 per cent slab.
Soon after Nirmala Sitharaman’s remark, two-wheeler manufacturers came out in support of the idea on Wednesday. Rajan Wadhera, President of the Society of Indian Automobile Manufacturers, said, “The automobile industry has been closely engaging with the Government of India on suggestions to boost demand and one major recommendation in this regard was the reduction in GST rates for the entire automobile sector to 18 per cent."
Vinkesh Gulati, Vice President at Federation of Automobile Dealers Association (FADA) said, “Hope this time, the auto industry will be lucky," reminding that the finance minister had made similar promise back in 2019.
Sudarshan Venu, Joint Managing Director, TVS Motor Company, said, “We welcome the Finance Ministers consideration of a GST tax reduction for two-wheelers and determining that two-wheelers are an essential tool for personal mobility. Post the slowdown due to Covid-19, the lowering of GST rate at the earliest, will be a welcome move as it will facilitate the much-needed revival in demand ahead of the festive season. Further, in the era of social distancing, customers are looking for affordable personal mobility options and this reduction, if implemented, will make these options more accessible to them. Lowering of GST rates will also help the entire ecosystem of manufacturers, auto ancillaries to dealers, supply chain partners and related vendors. We will await the next steps and hope this is done soon to give clarity to customers who are seeking to enter the market."
Shares of two-wheeler majors Hero MotoCorp Ltd, Bajaj Auto Ltd and TVS Motor Co Ltd gained 2-6% on Wednesday. If the cut comes through, then Hero MotoCorp is well placed to capitalize on it. Its monthly sales are recovering faster and it is gaining market share.
Compared to Bajaj Auto and TVS Motor, Hero MotoCorp has a bigger presence in rural and semi-urban regions, where the hit to demand has been less. Being a market leader in the price-sensitive entry and executive segment motorcycles also helps the company.
“Motorcycles up to 125cc, which have a higher presence in rural and semi-urban markets, continue to perform better than those over 125cc. Backed by a strong rural focus coupled with a portfolio focused towards motorcycles up to 125cc, Hero MotoCorp’s market share was up in July 2020," India Ratings and Research Pvt Ltd said in a note.