Maruti Bets on Small-Car Boom After GST 2.0: Will It Sustain?

Maruti Suzuki is placing a bet on reviving the small-car market of India after the GST 2.0. Early post-reform data from the festive season show a markrise in bookings and retail sales for hatchbacks and sub-4-metre cars. However, the question remains: Can Maruti sustain the small-car boom?

Backdrop of the GST Revision

Effective September 22, 2025, the GST slab on new car purchases will fall under a 5%, 18%, and 40% structure. Earlier, small cars under 4 metres in length and with 1200 cc engines were taxed at 28% GST. An additional 1% to 2% cess was applied, making the effective rate 30%. Under the new slab, these cars attract an 18% rate without any cess.

For example, the Maruti Suzuki Swift (LXi) saw its on-road price drop from ₹8.44 lakh to ₹7.66 lakh, a reduction of around ₹78,000.

In contrast, SUVs and luxury cars are now subject to a flat 40% GST. Earlier, although the GST rate was 28%, the cess of 15% to 22% raised the total tax to 50%.

The reform also simplifies tax filing for dealers and carmakers, reducing double taxation and facilitating the smooth receipt of input tax credits.

How Maruti Has Performed in Q2 FY26 Post-GST 2.0?

In Q2 FY26, Maruti posted a net profit of ₹3,349 crore, an 8% rise on a year-on-year basis. However, against expectations, sequentially, the profit was down by 11.7%. The company cited higher expenses as the reason for this drop.

For the same period, total expenses increased to ₹39,018 crore, a 15% rise year-over-year.

The EBITDA margin improved slightly to 10.6%, driven by a 6% increase in average selling prices and a more favourable product mix.

Along with the GST cut, the increase in disposable income, and the preference for premium small cars, the Q2 figures clearly show how compact and mini-plus compact cars are helping Maruti dominate the market.

What Is the Company Planning to Do to Dominate the Market?

To meet the growing demand for Maruti cars, the company began commercial production at its Kharkhoda facility on February 25, 2025. The plant primarily focuses on manufacturing the compact SUV Brezza and adds 250,000 units to Maruti’s annual production capacity.

This brings the company’s total installed capacity across India, including its Gurgaon, Manesar, and Gujarat plants, to 2.6 million units per year.

The management views the Kharkhoda plant as Maruti’s strategic response to rising demand and evolving market dynamics, particularly following a GST cut that has revived interest in small cars.

What else can they do?

If Maruti wants growth to be durable rather than a temporary spike, they can focus on:

• Ensuring steady component supplies and factory uptime.
• Investing in after-sales capacity as volumes grow.
• Adjust product specifications and packaging to meet evolving buyer expectations on connectivity, safety, and fuel economy.
• Monitor regional demand shifts and tailor offers to rural and peri-urban buyers, as it will matter more than a one-size-fits-all national approach.

Risks to Sustaining the Boom

A sober assessment requires separating a short-term stimulus from structural demand change. Four practical risks could limit durability:

• If factories and suppliers cannot ramp up quickly, pent-up demand will be met only partially, pushing buyers into discount cycles rather than sustained organic growth.
  
• Festive season discounts can magnify volume spikes. If discounts normalise, headline volumes may decline even though net retail demand remains higher than before.
  
• Draft proposals to relax certain fuel-efficiency norms for small cars could support Maruti’s short-term competitiveness; however, evolving standards on emissions and electrification could shift costs or alter feature expectations over the medium term.
  
• The long trend toward SUVs and Crossover Utility Vehicles (CUVs) has been driven by space, perceived safety and resale values. A tax advantage narrows the gap but does not eliminate the non-price reasons many buyers favour larger models.
  

Conclusion

For investors, Maruti’s focus on small cars after the GST 2.0 cut generally indicates potential advantages in the short to medium term .The tax benefit, improved margins, and rising demand for compact vehicles can improve its market position. However, investors may watch for production costs, changing emission norms, and competition in the SUV space, especially from companies like Tata Motors and Mahindra. Long-term investors may consider accumulating the stock on dips to capitalise on steady growth potential.

Sources:

Cars24
Economic Times
Business Standard
Economic Times
Autocar
Economic Times
Maruti
Reuters
Suzuki Global