As cars and sports utility vehicles (SUV) are set to become cheaper following cuts in Goods and Services Tax (GST) and compensation cess, auto manufacturers are likely to revisit their capacity expansion plans to support the additional demand.
After seeing a 2.4% year-on-year decline in the five months of the current fiscal, the passenger vehicle industry is expected to end FY26 with a growth of 5% (4.5 million units) compared to FY25, riding on an anticipated sales boost due to GST 2.0.
ALSO READGST cut, higher financing, lower rates hit the road
Following a surge in demand in the period immediately after the Covid-19 pandemic, a cyclical slowdown was witnessed in FY25, spilling over into FY26. Market watchers say that the reform in GST rates, aided by the increase in the limit of tax-free income, will push up buyer affordability levels to trigger a new demand wave.
Industry Leaders Weigh Capacity Plans
Speaking to FE, Nalinikanth Gollagunta, CEO, Automotive Division, Mahindra & Mahindra said, “If the demand goes up, (then) the industry will, no doubt, have to relook at their capacities. For that, they will have to look at the existing utilisation rates, which presently is around 70%.”
On the sidelines of the 65th annual convention of the Society of Indian Automobile Manufacturers (SIAM) held in New Delhi recently, Shenu Agarwal, managing director and CEO, Ashok Leyland said, “The GST (rate cut) should (both) spur and advance investments.”
“If the demand goes up, companies should be ready to invest. At Ashok Leyland we should be ok for the next two years. But definitely the industry should relook at the plans with regards to capacity creation,” Agarwal added.
In FY25 the PV industry saw a combined (domestic+exports) volume of 5.07 million, representing around 80% utilisation of existing industry-wide annual capacity of around 6.4-6.6 million units. As per disclosures made by the companies, fresh capacity worth 1.33 million is set to be added until 2029.
Fresh Investments and New Models Ahead
“Our (plant) utilisation rate is north of 80%, so we might have to look at that (capacity creation). We are adding 240,000 capacity in the next 24-30 months,” added Gollagunta.
Based on a new platform called Nu.IQ, M&M is planning a series of smaller sized SUVs to expand its presence in the sub-four-metre category starting 2027.
» Read More
