GST Cut on Small Cars May Hurt EV Growth, Says HSBC Report
The Government of India’s proposal to reduce GST on small cars could deal a blow to the country’s electric vehicle (EV) industry, according to a new report by HSBC Investment Research. The report warns that lowering taxes on petrol and diesel cars may reduce the cost advantage that EVs currently enjoy, potentially slowing down the momentum of India’s EV adoption.
The Centre is planning to simplify the GST structure by eliminating the 12% and 28% slabs. Under the proposed changes:
-
GST on small cars may be reduced from 28% to 18%
-
A special 40% rate could be applied to large cars by removing the current cess
-
As a result, small car prices could fall by around 8%, while big car prices may drop by 3-5%
While this move is expected to boost demand for petrol and diesel cars and create employment, it could also result in a short-term dip in government revenue.
Impact Scenarios for Auto SectorAccording to HSBC, there are three possible scenarios:
GST Cut for Small Cars (Most Likely):
-
Two-wheeler manufacturers, especially domestic firms, stand to benefit.
-
The government, however, may face a revenue loss of $4–5 billion.
GST Reduction to 18% for All Vehicles (Moderately Likely):
-
Prices of all vehicles would fall by 6–8%, but cess would continue.
-
Government losses could reach $5–6 billion.
-
EVs would lose part of their pricing advantage, potentially slowing their sales growth.
GST Cut Plus Removal of Cess (Least Likely):
-
This would simplify the auto tax structure.
-
However, the government could lose nearly half of its GST revenue from the auto sector
The report underlines that India’s EV ecosystem is still in its early stages. Any move that reduces the relative affordability of EVs compared to petrol and diesel cars could hurt adoption rates. While GST reforms may benefit consumers of conventional vehicles, they risk slowing the country’s transition towards clean mobility.