- GST rates on auto parts reduced to 5-18%, cess removed
- Move to improve vehicle affordability, curb grey market
The government’s recent restructuring of the Goods and Services Tax (GST) for vehicles and auto parts is expected to significantly benefit India’s auto foundry industry. By removing the compensation cess and rationalising the tax structure, the reforms aim to reduce costs for manufacturers while creating a more streamlined taxation framework across the automobile value chain.
India’s auto parts casting industry has strong regional hubs, particularly in Maharashtra (Kolhapur and Pune), Tamil Nadu (Chennai and Coimbatore), Gujarat, and the National Capital Region (NCR), with emerging clusters in Madhya Pradesh. These regions serve as key suppliers of castings and forgings for automobiles, tractors, and heavy vehicles. Any change in taxation that boosts end-market demand translates directly into higher order inflows for foundries.
GST rates reduced to 18% from 28% earlier
The recent GST overhaul has scrapped the earlier 12% and 28% slabs, leaving 5% and 18% as the primary rates, alongside a new 40% slab for luxury goods. Importantly, auto parts now fall under the 18% slab (down from 28%), while tractors up to 1,800cc and tractor parts are placed in the 5% slab. This makes vehicles and tractors more affordable, particularly in the mass-market and agricultural segments, which are critical demand drivers for foundry castings.
Impact of GST rate reductions
Foundries to see stronger demand: For Kolhapur, a major centre for tractor and mid-segment auto castings, the changes are especially positive. Foundries here are likely to see stronger demand visibility as OEMs ramp up production to capture the cost advantage. Additionally, the simplified GST structure will improve input tax credit management, easing working capital pressures for suppliers.
ADC12 market to gain momentum: The recent GST cut on vehicles is expected to boost demand in the automotive sector, increasing consumption of aluminium alloy ADC12 used in die-casting. Higher sales, especially in entry-level cars, will support prices, while smoother GST implementation and better affordability may further stabilise or raise c amid steady demand.
In September, automobile OEMs’ ADC12 prices hovered at around INR 230,000/tonne (t) in Delhi NCR, while in Chennai, they stood near INR 232,000/t, with typical 30-day payment terms. Market participants expect limited downward pressure on alloy ingot prices, especially with the approaching festive season expected to keep automotive demand firm. The GST cut further enhances affordability, which is viewed positively by the market.
Neutral impact on input costs: Foundries’ own raw materials (pig iron, coke, ferrous and non-ferrous scrap, etc.) remain under normal GST structures, so there will be no big change on the input side.
Uncertainty persists in some pockets
However, some alloy ingot makers remain cautious, noting uncertainty regarding whether the GST rate on scrap will be reduced to the 5% slab, which could influence price dynamics. Despite this, market participants expect the demand for ADC12 to rise around 5-8%.
Auto industry welcomes move
The Automotive Component Manufacturers Association of India (ACMA) welcomed the GST Council’s decision to bring all auto components under a uniform 18% GST slab — a long-standing demand. ACMA highlighted that this rationalisation will help curb the grey market, encourage the use of quality-compliant components, ease compliance burdens, and support MSMEs. These reforms are expected to strengthen the competitiveness and resilience of India’s $80.2 billion auto component industry on the global stage.
Outlook
The GST restructuring strengthens growth prospects for India’s auto foundry sector, with Kolhapur and other major hubs well-positioned to capture rising demand from tractors and passenger vehicles. The long-term outlook remains positive, with stronger linkages between taxation reforms and industrial growth.
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