Will GST Reforms Create a New 'Sub-₹10 Lakh Tech Car' Segment?

Sunil Kalra, Partner, Risk Consulting and Forensics, Forvis Mazars in India in an interaction with India Manufacturing Review shared his views on whether GST restructuring revive the small-car segment, the cost structures and localization strategies that are needed to build a sub-₹10 lakh “tech car and more.

Sunil Kalra is an accomplished leader in Internal Audit, Risk Management, and Forensic Investigations, with a strong record of building and managing offshore consulting teams. His global experience across the USA, UK, and Germany spans ERM, internal controls, and compliance transformation. A Fellow Chartered Accountant with an MBA, he is known for integrity, strategic insight, and delivering high-impact solutions that drive organisational growth and resilience. 

Will GST restructuring revive the small-car segment - or is it already too late?

With a reduction in GST, the economics surrounding entry level vehicles improves, and the indications of early-buyer sentiment show signs of improvement. However, the small car market won't return overnight as the shift towards SUV's, increasing costs of ownership and limited new product pipelines in the last five years means a long road ahead for recovery. The reform is timely and provides an impetus for OE manufacturers to take another look at this segment but due to the lack of new models, locally sourced products, and the need for more competitive pricing, the mass market boom from 2014 to 2018 will not be able to be recreated.

GST 2.0 has made small cars cheaper by cutting taxes to 18%, triggering early sales recovery and boosting affordability for first-time buyers. Manufacturers like Maruti see renewed demand. But long-term SUV preference, higher running costs, and limited aspirational appeal mean revival will be modest, not a return to past dominance. It’s not too late, but the rebound will be measured, not dramatic.

What cost structures and localization strategies are needed to build a sub-₹10 lakh “tech car”?

To create a feature-rich, less expensive car (less than, ₹10 lakh), automotive manufacturers will need to localise their electronic components to much larger production readiness. This will include electronic control units (ECUs), display systems, and telematics hardware being locally made in large volumes. Expect to see car makers using modular platforms, streamlined trim lines, and many common components to create multiple vehicles. Car makers will also be likely to build their vehicles around a "bare minimum of hardware plus software upgrades" concept, where a customer can add some features after initial purchase. Manufacturers must also continue to consolidate vendors for long-term contracts on materials, such as steel and aluminium, as well as electronics to sustain profit margins going into the future.

Building a sub-₹10 lakh “tech car” in India is possible - but only with ruthless cost engineering, deep localization, modular electronics, and disciplined feature packaging.

A sub-₹10 lakh “tech car” requires an ex-factory cost of ₹6.5 - 7 lakh with 85% localization. Use a scalable platform, shared modules, and a lean electronics architecture centered on a single infotainment/telematics controller. Avoid high-cost ADAS and large displays; focus on OTA capability, connected features, and core safety. Standardize HVAC, seats, wiring, and suspension across variants. Invest automation only in BIW, paint, and battery lines. Volume-led sourcing and supplier partnerships are key to amortizing tooling and meeting the price target without compromising reliability.

Will GST reforms redirect R&D from premium EVs to compact, fuel-efficient, connected cars?

OEMs will continue to invest in premium EVs but re-balance their portfolios. Lower GST regimes make the entry-level segment more reliable, so companies will invest more of their engineering resources into Compact Hybrids, Micro EVs and Affordable ICEs with Connectivity features. R&D will become more balanced between 'aspirational EVs' and 'volume-driven tech vehicles.'

Yes. GST reforms that favour compact, efficient vehicles would likely shift India’s automotive R&D away from premium EVs toward affordable, mass-market models. Lower taxes create stronger demand signals, and OEMs follow the volumes. Since India is a value-driven market, incentives for small EVs, hybrids, and frugal ICE cars would push companies to invest in lightweighting, efficient powertrains, and scalable connected-car tech rather than expensive premium EV platforms. This aligns with government goals of localisation, lower emissions, and wider adoption - making compact, tech-rich cars the natural R&D focus.

How will suppliers cope if OEMs push aggressive localization while raw-material prices stay volatile?

To reduce the risks of fluctuating raw material prices, material companies will need to invest in advanced technologies, including automation and long-term pricing agreements with original equipment manufacturers (OEMs).

Higher-volume manufacturers, especially Tier 2 suppliers that rely on imported components, may experience great volatility and, as a result, some will likely establish joint ventures to manufacture electronic components in the local region. Many may also investigate ways to increase their production capacity near key automotive hubs and renegotiate their contracts to permit some of the costs of rising materials to be passed along to customers.

Although profit margins may decline as a result of rising material costs, increased volumes and greater production capacity will allow the manufacturer to counterbalance the financial strain associated with such investments and, therefore, be able to remain competitive in the automotive market.

Suppliers can cope with aggressive localization and volatile raw-material prices by becoming more flexible, efficient, and closely aligned with OEMs. They’ll need smarter cost control through hedging, multi-sourcing, and value engineering, alongside selective automation and lean processes to reduce scrap and energy use. Localizing their own sub-suppliers’ cuts logistics and currency risk. Stronger OEM partnerships - shared R&D, transparent costing, and volume commitments - help spread financial pressure. With targeted government incentives and improved working-capital support, suppliers can stay competitive without compromising quality, even in a volatile materials environment.

Will global small-car platforms return to India under the new GST rules?

By lowering taxes, a more attractive business case is created. However, profitability, rather than tax implications, will ultimately determine whether small global car platforms return to India. In order to be viable for OEM (original equipment manufacturers) to reintroduce small global car platforms into India, there must be sustained demand, extensive localization and broad export opportunities. The majority of OEMs will likely provide adaptations of their existing regional platforms for India, rather than fully reintegrating their global small car platforms until they have greater clarity on the political landscape and demand for such products over the long term.

Will rural and tier-2 buyers benefit the most if GST makes small cars cheaper?

While lower tax rates will enhance business cases for international small car platforms, increasing profit margins remains the key barrier. Global small car platforms can thrive again only when Original Equipment Manufacturers (OEMs) have a steady demand, good local supply chains and good export opportunities. Some manufacturers may use their existing regional platforms and adapt them to Indian conditions; however, to achieve mass-market re-introduction of international small cars, there has to be long term stability in the policies and market conditions associated with these products.

Rural and Tier 2 buyers are highly price-sensitive who often postpone purchases due to even small price hikes from safety/emission rules. Lower GST directly reduces upfront cost - the biggest barrier in rural and tier-2 India. Cheaper EMIs, better fuel-efficient options, and more accessible financing further boost adoption. Since these regions rely heavily on small cars for family, farm-adjacent, and business mobility, a GST cut would disproportionately improve affordability and revive demand, delivering the greatest impact outside major cities.

What connected features will buyers expect in a sub-₹10 lakh “tech car”?

As we move into a future full of electrification, the growing importance of connectivity in new electronic models continues to drive increased consumer expectations on everything from entertainment to safety features. To meet consumer expectations for digital experience, many manufacturers are replacing hardware-based features with software applications that allow them to interact with their cars through their phones.

New car buyers and lessees of tomorrow will likely be less interested in the traditional luxury accessory than they are in a modern, technology-based experience that allows them to connect to their vehicle and manage it seamlessly. Many manufacturers will likely limit the number of hardware options available to manufacturers to remain competitive while shifting their focus toward software enhancements and smart technology upgrades for new vehicles.