GST Rate Cut on Commercial Vehicles Eases Discount Pressure on Manufacturers, Customer Prices Remain Stable

The Indian government's rationalization of GST rates on commercial vehicles, bringing it down from 28% to 18%, has brought relief to Original Equipment Manufacturers (OEMs) in the country's highly competitive truck market. Previously, manufacturers of medium and heavy commercial vehicles (M&HCVs) often offered discounts of up to 10% (around ₹5 lakh on a ₹50 lakh vehicle) to attract buyers. With the tax rate reduction, OEMs have used this opportunity to scale back these significant discounts. According to Umesh G Revankar, executive vice chairman of Shriram Finance, the net cost to customers has seen only marginal changes because OEMs have reduced their discounts. This effectively means the tax benefit was absorbed into the pricing structure rather than being fully passed on to consumers. An official from a non-banking financial company (NBFC) focused on commercial vehicle financing noted that while M&HCV prices decreased following the GST cut, discount levels dropped by approximately 5–6 percentage points. A senior executive from a major truck and bus manufacturer also reported a 3–4% decline in their company's discount levels. However, some dealers suggest that this reduction in discounts might be temporary, as aggressive pricing and discounts remain a norm in the fiercely competitive truck segment.

Impact: This development allows commercial vehicle manufacturers to improve their profit margins or maintain healthier pricing strategies without significantly impacting buyer affordability. For investors, this could translate to better financial performance for automotive companies in the commercial vehicle segment, assuming demand remains robust. The stability in net customer pricing also aids financial institutions involved in commercial vehicle financing. Rating: 7/10

Difficult Terms Explained: GST: Goods and Services Tax. A comprehensive indirect tax levied on the supply of goods and services in India, replacing multiple previous taxes. OEMs: Original Equipment Manufacturers. Companies that produce finished vehicles or their components, which are then sold under their own brand name. In this context, it refers to companies that manufacture trucks and buses. NBFC: Non-Banking Financial Company. A financial institution that provides banking-like services but does not hold a full banking license. Many NBFCs are involved in vehicle financing.