GST 2.0: Heavy Industries Set for Revival, MSMEs to Gain

The Government of India’s new GST 2.0 regime is being hailed as one of the most transformative policy reforms in recent years for India’s heavy industries. By cutting rates across automobiles, commercial vehicles, tractors, buses, and related components, the reform is designed to create a ripple effect that will boost demand, generate employment, support MSMEs, and strengthen India’s manufacturing competitiveness.

The changes, announced through the latest GST rationalisation framework, go far beyond tax simplification. They signal a new policy direction: encourage domestic consumption, revive industry growth, promote sustainability, and unlock opportunities for India’s MSME ecosystem.

Automobile Sector: A Revival Pathway

The automobile sector, which has faced repeated slowdowns due to pandemic disruptions, inflationary pressures, and global supply chain shocks, is one of the biggest beneficiaries of GST 2.0.

• Two-wheelers: GST on bikes up to 350cc has been slashed from 28% to 18%. Two-wheelers are the lifeline of rural and semi-urban India, used by farmers, gig workers, delivery executives, and small traders. The tax cut is expected to make motorcycles more affordable for lower-middle-class households and young professionals, reducing EMI burdens and supporting financial inclusion through NBFCs and banks.

• Small cars: GST on affordable cars has been cut to 18% from 28%. This will stimulate first-time car ownership, particularly in smaller towns where household mobility is a growing aspiration. Dealerships, auto-finance companies, and service garages stand to gain significantly.

• Luxury and medium cars: For larger cars, the government has rationalised taxation by introducing a flat 40% GST and removing the additional cess. This not only simplifies the tax structure but also ensures full Input Tax Credit (ITC) utilisation, something previously restricted due to cess components. For aspirational buyers, this makes larger cars more accessible, while for the industry, it ensures policy stability and investment confidence.

Tractors and Agricultural Mechanisation

India’s position as one of the largest tractor markets globally is set to strengthen further. GST on tractors below 1800cc has been reduced from 12% to 5%, while road tractors above 1800cc now attract 18% instead of 28%.

In addition, tractor parts and critical components such as tyres and gears will now be taxed at just 5%. This change is expected to:

• Reduce the overall cost of tractors, making them more affordable for farmers.

• Boost mechanisation in agriculture, leading to higher productivity in crops such as wheat and paddy.

• Encourage exports by positioning India as a global hub for affordable tractor manufacturing.

For MSMEs manufacturing tractor components, this policy directly translates into higher production orders and stronger integration into domestic and global supply chains.

Commercial Vehicles: Cheaper Freight, Cheaper Goods

Commercial goods vehicles, including trucks and delivery vans, are the backbone of India’s logistics. Trucks carry nearly 70% of the country’s goods traffic, making their cost structure a critical factor for inflation.

GST on these vehicles has been reduced from 28% to 18%. This will lower the upfront cost of trucks, reduce freight rates, and improve cost efficiency across supply chains. Cheaper freight translates into lower prices for agricultural produce, cement, steel, FMCG, and even e-commerce deliveries.

This measure directly supports the government’s PM Gati Shakti initiative and aligns with the National Logistics Policy, which aims to reduce logistics costs as a share of GDP. For MSMEs that operate small trucking fleets or rely on transport for their goods, this change significantly reduces operating pressures.

In parallel, GST on third-party insurance of goods carriages has been reduced from 12% to 5%, further easing the financial burden on transport operators.

Buses: Boosting Shared Mobility

Buses with seating capacity of over 10 persons will now attract 18% GST instead of 28%. This will:

• Lower capital costs for fleet operators, schools, corporate shuttles, and state transport undertakings.

• Reduce passenger fares, making public transport more affordable.

• Encourage a shift from private vehicles to shared transport, helping reduce congestion and pollution.

By making public transport more affordable, GST 2.0 supports sustainable mobility and creates opportunities for fleet expansion, benefiting both urban and semi-urban India.

Auto Components and Ancillary MSMEs

A significant reform under GST 2.0 is the reduction of rates on auto components to 18%. This has major implications for India’s large auto ancillary sector, which is dominated by MSMEs.

From tyres, batteries, and glass to steel, electronics, and plastics, the demand for auto components will rise in tandem with higher vehicle sales. Ancillary MSMEs, which form the backbone of the supply chain, will directly benefit from this demand surge.

Notably, the services linked to goods and passenger transport have also undergone rationalisation. By offering businesses a choice between 5% and 18% GST rates, the government has ensured flexibility while avoiding the cascading effect of taxes.

Employment and Financial Inclusion Impact

The automobile and transport industries collectively support over 3.5 crore jobs in India—directly and indirectly. From manufacturing and sales to financing, logistics, and maintenance, a revival in these sectors will naturally expand employment opportunities.

• Dealerships and transport services will increase hiring.

• Informal sector jobs such as drivers, mechanics, and service garage workers will benefit.

• Growth in auto sales will stimulate credit demand, helping banks, NBFCs, and fintech lenders expand their retail loan books.

For semi-urban India, where mobility and access to credit are closely linked, GST reforms can be a catalyst for financial inclusion and income growth.

SMEStreet Perspective

The GST 2.0 reforms are more than just tax cuts—they are an economic stimulus package for heavy industries with MSMEs at the core.

• For manufacturers: Lower taxes encourage fresh investments under Make in India.

• For MSMEs: Higher demand across auto, tractor, bus, and logistics segments means stronger order pipelines.

• For consumers: Affordable vehicles and cheaper transport costs improve purchasing power.

• For the economy: Rationalisation reduces inflationary pressures and strengthens India’s export competitiveness.

Lastword

By rationalising GST slabs across heavy industries, the government has provided a decisive push to demand, employment, and investment. The reform not only simplifies taxation but also creates a multiplier effect across manufacturing, logistics, agriculture, and services.

For MSMEs, which are deeply embedded in every link of these industries, GST 2.0 is a rare window of opportunity to scale operations, innovate, and align with India’s long-term economic vision.

India’s heavy industries are now poised for a strong revival, and if MSMEs seize the moment, they will play a defining role in making the country a global manufacturing hub.