A combination of tax cuts and proactive moves by the industry leads to one of the best festive season performances by the auto industry.
18 Nov 2025 | 3082 Views | By Darshan Nakhwa
In a year when consumer sentiment had begun to soften and buyers were holding back, India’s automobile industry found an unexpected accelerator. The rollout of Goods and Services Tax 2.0 in September, timed almost perfectly with the festive season, reshaped the economics of mobility. With lower tax rates on small ...
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In a year when consumer sentiment had begun to soften and buyers were holding back, India’s automobile industry found an unexpected accelerator. The rollout of Goods and Services Tax 2.0 in September, timed almost perfectly with the festive season, reshaped the economics of mobility. With lower tax rates on small cars and commuter two-wheelers, and a simplified structure for larger vehicles, affordability improved just as festive optimism peaked.
The effect was immediate. Vehicle retail sales in October jumped 40.5% year-on-year, the highest monthly growth in India’s automotive history. Showrooms that had seen cautious footfalls through much of the year suddenly turned into high-decibel delivery centres as the 42 days covering Navratri to Diwali set new records across twowheelers, passenger cars and commercial vehicles alike. It was a rare alignment of policy reform, favourable rural economics, and cultural timing–the kind of perfect confluence that industry veterans say happens once in a decade.
Yet as the celebrations fade, the sector faces a bigger question: can this momentum hold? Was the surge a reflection of deeper structural recovery or simply a welltimed release of pent-up demand triggered by lower taxes and festive enthusiasm?
Reform Meets Consumer Psychology
In September, the government announced a reduction in GST on small cars, motorcycles up to 350cc, three-wheelers, buses, trucks, and ambulances from 28% to 18%. The policy arrived at a sensitive time. For much of the year, high financing costs, muted rural demand, and inflationary pressures had subdued sales in the entry-level segment.
Many consumers had deferred purchases after Prime Minister Narendra Modi promised a “Diwali gift” for citizens in the form of the next generation of GST reforms in his Independence Day speech. The reform has not only improved affordability but also reignited confidence. In rural India, better monsoon rainfall and higher minimum support prices (MSPs) ensured liquidity. For urban buyers, the cumulative effect of lower GST, festive discounts, and easier credit created the ideal purchase window.
Pre and Post GST momentum
Between April and August 2025, before GST 2.0’s announcement, India’s auto retail industry had grown just 2.9%, constrained by inflation, tepid rural sentiment, and high vehicle ownership costs. However, post-GST announcement, in the seven months till October, the cumulative growth accelerated to 10.7% year-on-year, with total retails touching 1.64 cr units compared to 1.48 cr a year earlier. Two-wheelers led the rebound, up 12.6% versus 2.4% in the pre-GST months. Passenger vehicles improved to 5.8%, and CVs to 5.2%, while tractors sustained 11% growth. Only construction equipment lagged, falling 10%.
A 42-Day Celebration of Policy and Prosperity
The 42-day festive window, which overlapped with the rollout of GST 2.0, has emerged as a case study in how well-timed policy reform can amplify market sentiment. According to FADA, total vehicle retails during the period rose 21% year-on-year, setting an all-time festive sales and growth record across segments. “The festive season embodied the spirit of simpler tax, stronger growth,” FADA President C. S. Vigneshwar said.
“It lowered ownership costs, energised Bharat’s economy, and rekindled aspiration across society.” The two-wheeler category was the biggest beneficiary, registering 22% growth, fuelled by rural optimism, improved liquidity, and GST rationalisation on sub-350cc models. Dealers described it as the strongest festive cycle in years, powered by a surge in commuter motorcycle and scooter demand.
“The impact of GST cuts cannot be emphasised more. It was the perfect catalyst for an industry that was languishing at least in motorcycles at -1% from April to August, suddenly got a steroid injection at the right time, and it surged forward,” Bajaj Auto Ltd’s Executive Director Rakesh Sharma said. During the period, passenger vehicles too recorded a historic run, rising 23% year-on-year to achieve their highest-ever festive tally.
Compact and sub-four-metre cars, the biggest beneficiaries of tax cuts, led the charge, with waiting lists now stretching well into November. “Following GST 2.0, the industry witnessed strong momentum driven by improved affordability and positive sentiment,” said Tarun Garg, COO of Hyundai Motor India. “We witnessed robust market demand and high consumer enthusiasm (in October), leading to the second-highest monthly sales of our formidable SUV duo – the Creta and Venue combined, with 30,119 units sold.
We expect to accelerate this momentum with the launch of the all-new Venue.” Industry optimism was echoed by Anish Shah, Group CEO and Managing Director of Mahindra & Mahindra Ltd, who credited macroeconomic strength and policy synergy for driving demand. “Overall we are seeing very strong economic growth. And that is something we see across all our businesses. We operate in nearly 70% of India's GDP.
So, from that perspective, we have seen that positivity,” Shah said. “The GST cut or transformation was a masterstroke in many ways. It has created a lot more optimism, and that is helping translate the strong foundation that was there from an economy standpoint to what we are seeing in terms of demand now.” During the 42-day festive stretch, commercial vehicle sales expanded by 15% year-on-year, buoyed by freight movement, logistics efficiency gains from GST 2.0, and sustained infrastructure spending.
Tractors grew 14%, reflecting strong agricultural performance and government support, while three-wheelers advanced 9%. Construction equipment alone contracted 24%, constrained by delayed projects and tight financing.
September Vs October
For most of September, dealerships saw limited activity as consumers awaited clarity on GST 2.0. But when the reform arrived in the final week, coinciding with Navratri, sales spiked. According to FADA, Navratri 2025 registered a 34% year-on-year rise–one of the strongest on record. Two-wheelers grew 36%, PVs 34.8%, and tractors 18.7%. “September reminded us what the right policy, at the right time, can do for sentiment,” said Sai Giridhar, FADA Vice President.
Though September’s full-month growth averaged 5.2%, the late-month surge replenished dealer inventories and set the stage for October’s peak. October became the industry’s high-water mark. The overall retail sales surged 40.5% year-on-year to an all-time high of 40.2 lakh units.
Two-wheelers spearheaded the retail boom, with sales climbing 52% year-on-year to 31.5 lakh units, a new record for the industry. FADA attributed the uptrend to rural demand, affordability gains from GST rate cuts on entry-level models, and strong festive footfalls at dealerships.
PVs grew 11.3% year-on-year to 5.57 lakh units in October, breaching the five-lakh threshold in a month for the first time in India’s retail history. The PV inventory also eased by 5-7 days to 53-55 days signalling healthier supply alignment disruptions of September. In October, Commercial vehicles sales expanded 18% year-on-year to 1.08 lakh units, aided by renewed freight movement and infrastructure activity.
Tractor sales rose 14% to 73,577 units, supported by favourable monsoons, higher farm incomes, and better rural cash flows, while three-wheelers grew 5.4% to 1.30 lakh units. The only laggard was the construction-equipment segment, which declined 30% due to financing constraints and project delays. “After an almost quiet September for the first 21 days due to the GST transition, October witnessed a swift rebound, almost like a hurdle race where pentup demand passed the baton to festive sentiment and tax-cut excitement, propelling sales to historic levels,” Vigneshwar said.
The defining story of October was the resurgence of demand from rural areas. It emerged as the true growth engine, outpacing urban demand across all segments. FADA data shows rural PV sales grew over three times faster than urban, while rural two-wheeler growth nearly doubled urban rates. “Favourable monsoons, higher farm incomes, and the government’s infrastructure push have translated into purchasing power at the grassroots,” said Vigneshwar. “It marks a structural shift in India’s auto demand map.”
Winners of the GST Windfall
The festive season reshaped market dynamics across the three largest vehicle categories. In the passenger vehicle category, Maruti Suzuki India Ltd and Tata Motors Ltd emerged as major beneficiaries, supported by strategic discounting and quicker GST price passthrough. Maruti leveraged its compact-car dominance, while Tata capitalised on its SUV and EV line-ups. Maruti Suzuki showed a 14.18% growth in combined September-October sales at 365,043 units, demonstrating masterful market timing. The company's October sales alone hit 238,991 units, marking a robust 17.27% year-onyear growth. What made Maruti's approach particularly effective was the combination of GST benefits with festive offers.
Tata Motors' 18.01% growth in combined September- October sales (115,192 units) tells only part of the story. September 2025 marked Tata's best-ever monthly sales performance, with the company capitalising perfectly on its SUV-heavy portfolio. Mahindra's performance (106,986 units sold in September-October with 8.53% growth) becomes more impressive when viewed through the lens of its product positioning. Unlike competitors who benefited massively from sub-4-meter GST cuts, Mahindra's portfolio of larger SUVs still saw significant GST benefits.
The entire Mahindra lineup, including the Thar Roxx, Scorpio N, Bolero, XUV700, and XUV 3XO, received GST benefits of over Rs 1 lakh each. In the two-wheeler segment, Hero MotoCorp, Honda Motorcycle & Scooter India, TVS Motor Company, Bajaj Auto, and Royal Enfield together accounted for more than four-fifths of total domestic sales between September and October, according to FADA data.
Hero MotoCorp emerged as the biggest gainer, retailing over 13.18 lakh units, up 55% year-on-year, as rural demand, GST-driven affordability, and strong festive schemes revived its commuter bike volumes. “The recent GST benefits announced at the onset of the festive season provided a significant boost to consumer sentiment, revitalizing retail momentum across markets,” the company said.
Honda with combined sales of 11.44 lakh units, grew nearly 28%, driven by its scooter portfolio and expansion in semi-urban markets. TVS Motor registered a sharp 40% jump, retailing 8.04 lakh units, supported by a balanced mix of scooters, motorcycles, and growing EV sales through its iQube brand.
Bajaj Auto, which had seen muted momentum earlier in the fiscal, regained traction with a 24% increase, powered by demand for its Pulsar and Platina range and renewed rural offtake. According to Bajaj Auto’s Sharma, the festive surge largely represented sales advancement rather than structural expansion. “The demand pyramid hasn’t widened, but the uptrading forces have become stronger. Across every segment, it’s the top-end variants that have outperformed the rest,” he said.
Following the implementation of GST, customers already in the buying cycle appear to be opting for higher-end versions rather than entry-level models. “If you take 100 cc, it’s the better 100 cc; if you take 125 cc, it’s the better 125 cc,” Sharma said. “Buyers said, ‘Prices have come down, let me go for the top version.’ That phenomenon has happened all through.”
The Road Beyond Festivities
The auto industry now moves into a phase of measured optimism–cautious, yet quietly confident that the recent surge marks the beginning of something deeper. “The full benefits of GST 2.0 are yet to be realised,” noted an auto analyst. “Urban consumption, which had softened earlier, is rebounding, while rural demand remains firm. If current trends persist, FY26 could mark the beginning of a new growth cycle driven by innovation and renewed confidence.” That sentiment is widely shared.
According to FADA’s latest dealer survey, 64% of dealers expect growth in November, while 70% foresee continued expansion through January 2026. “With policy reforms, demand visibility, and rural resilience aligning, the sector enters year-end with confidence,” said Vigneshwar. In its commentary, FADA added that “strong rural cash flows post-harvest, marriage-season demand, and improved stock availability across categories” are expected to sustain retail momentum.
Upcoming new launches, better financing access, and stable fuel prices further strengthen what the association calls “a supportive ecosystem for continued growth.” Still, most stakeholders acknowledge that some moderation is inevitable after a record-breaking October.
Bajaj Auto’s Executive Director expects volumes to normalise but remain firmly in the positive zone. “If we compare like-for-like, post-festive, an industry which was in gentle decline, about –1%, would probably swing to 6% growth,” Sharma said. “Both the quantum and the quality of growth have improved. If this sustains and there are no external spoilers, the coming months look much better for the industry.” Other two-wheeler makers echo similar optimism. Hero MotoCorp said that with continued festive enthusiasm and stronger consumer confidence, it expects a “sustained retail trajectory in the coming months.”
The company added that with its strong product line-up, robust domestic demand, and expanding international footprint, it remains well-positioned for sustained growth through FY26, across ICE, premium, and electric segments. K. N. Radhakrishnan, Director and CEO of TVS Motor Company, described GST 2.0 as a structural tailwind. “The GST reduction is definitely going to help, and it will accelerate consumption across various goods and industries. And since it is across many of the commodities and some of the auto vehicles, I think it is going to give a multiplier effect going forward,” he said.
“With the abovenormal monsoon and the IMF’s revised GDP forecast for India–from 6.4% to 6.6% — we expect strong momentum in Q3, and the GST benefit should carry through to Q4 as well,” Radhakrishnan said. Passenger vehicle makers shared a similar outlook. R. C. Bhargava, Chairman of Maruti Suzuki India Ltd, said enquiries remain strong even after the festival season. “We currently have 350,000 bookings, out of which 250,000 are in the 18% GST class. I am sure this heavy rate of growth which we have witnessed, this high rate cannot sustain, but I also expect that in the small car segment, I do expect that double digit growth should be possible for some period to come in the future.”
At Hyundai Motor India, optimism remains high. Managing Director Unsoo Kim called GST 2.0 “a transformative milestone” that has “fueled growth, enhanced ease of doing business, and strengthened consumer confidence.” “It is a reform that sets the tone for sustained industry momentum,” Kim said. “On the domestic front, we aim to keep pace with the industry’s growth momentum for the residual part of the year, while our strong export performance is set to surpass targets for FY26.”
Mahindra expects the momentum to hold as well. The company projects mid- to high-teen growth in SUVs for the current fiscal. “The post-festive demand continues to be robust. Of course, it will never be at the level of the festive period. But, it is not falling off as significantly as one normally sees. The reason for that are 2-3 things,” said Rajesh Jejurikar, Executive Director and CEO of the Auto and Farm Sector at M&M.
“One is, this time, the cash flow from harvesting will come in now. Cash in the hands of farmers, rural customers is coming in now as we get into November. So, we expect sustained demand through November. The second is, there are enough auspicious days through November, which would enable car and tractor buying. So, November is expected to be at a reasonable level of performance. And, we have been seeing that even after Diwali got over on Oct 22.”
Reflecting this rural optimism, Mahindra has revised its tractor industry growth outlook for FY26 to low double digits, up from 5-6% earlier. “The rains have been good, reservoirs are healthy, and we’ve factored in the GST benefit,” Jejurikar said. “We’re seeing improved sentiment supported by higher MSPs, strong rural spending, and even export-led income for farmers. Together, these create the right conditions for sustained growth.”
2026: Competitive, Connected, and Electric
Looking ahead, 2026 promises to be one of the most competitive years in India’s automotive history. More than 25 new models are scheduled for launch, ranging from affordable EVs to premium offerings. SUVs are expected to continue to dominate, the battle for consumer attention will increasingly play out between hybrids and electric vehicles, especially as infrastructure improves and consumer awareness deepens.
Automakers are rapidly recalibrating their strategies for this new era. Hyundai’s long-term plan now spans ICE, hybrid, and EV portfolios, while Mahindra’s Born Electric (BE) range is extending the company’s electric reach. Tata Motors aims to scale domestic EV penetration through mass-market models, even as it expands its premium lineup under the Curvv and Harrier.EV badges.
“With the GST rationalisation and growing competition, we’re entering a cycle defined by technology, value, and choice,” said an auto analyst. “The consumer base is evolving from affordability-led to feature-driven. This structural change will shape the industry over the next few years.” For now, India’s auto ecosystem, spanning factories and showrooms, is running on renewed confidence.