Mint Explainer | Despite a GST cut, why Maruti and Hyundai disagree on the future of small cars
GST cuts may lower hatchback prices by up to 10%, but with SUVs dominating Indian roads, can affordability alone revive small cars? Mint breaks down what’s at stake for automakers and buyers.
NEW DELHI : The Indian middle-class's long-standing love affair with the humble hatchback seems to be over. Once the undisputed first car for millions, models like the Maruti Alto and WagonR have been pushed aside by a new status symbol: the SUV.
But with the government's recent decision to slash the goods and services tax (GST) on small cars, a debate has ignited within the auto industry: can this tax break revive the dying hatchback segment, or have consumer tastes shifted for good?
India's top two carmakers, Maruti Suzuki and Hyundai, hold opposing views. Maruti insists that affordability has always been the key issue, arguing that rising safety and regulatory costs made small cars too expensive for many buyers.
Hyundai, however, believes the market has evolved beyond mere price, claiming that Indian consumers now prefer the space and aspirational "status" offered by compact and micro SUVs, which fall into the same tax bracket.
Mint explores these two conflicting perspectives and what they mean for the future of the Indian auto market.
What counts as a ‘small car’?
The definition is tricky. For taxation, small cars are those under 4 metres. But within this band, micro and compact SUVs such as the Tata Punch, Tata Nexon, and Hyundai Venue now dominate, sidelining hatchbacks like the Maruti WagonR, Alto, and Renault Kwid.
Data backs this shift, according to Autocar India data, micro SUV sales rose 20% in FY25 to 510,793 units, while compact SUVs grew 14% to 697,013 units.
In contrast, hatchback sales fell 13% in the same year, slipping to nearly a million units. The government has now cut GST on cars below 4m from 28% to 18%, depending on engine size, with prices across hatchbacks and small SUVs ranging from ₹5–10 lakh.
Why small cars may not see a big boost
A uniform GST cut means compact SUVs also get cheaper, capping hatchback gains.
“The small SUV segment is already the biggest segment in the car industry. GST rate rationalisation, coupled with 8th pay commission, and rising customer aspirations could give a huge demand boost. The small SUV segment could see the maximum growth," Tarun Garg, Hyundai Motor India COO, said on the sidelines of an industry event last week.
He added that cars under ₹10 lakh—whether hatchback or SUV—still make up half the market, showing demand remains strong.
He also pointed out that companies themselves have not focused on launches in the hatchback segment in the last few years. Earlier this month, the leadership of small car giant Maruti also acknowledged that the SUV segment can’t be ignored with most of its upcoming launches focused on SUVs.
Why Maruti still sees hope
Maruti remains bullish. A 10% rise in small car sales in FY26 is likely, said Partho Banerjee, senior executive officer, marketing and sales, Maruti Suzuki.
With hatchback prices set to fall at least 5–10%, Maruti’s leadership believes the most cost-conscious buyers—those still on the fence—may finally be nudged into making a purchase in the coming months. To further boost hatchback sales, the carmaker has cut the prices of car models in the segment by up to 24%.
Earlier, Maruti Chairman RC Bhargava had also suggested that small cars will see a strong gain in sales when GST cuts come into effect. The government has notified that the GST tax cut will come into effect from 22 September.
A GST cut from 28% to 18% on small cars may give the original small-car maker in India a big boost by making them more affordable, according to Bhargava. “Lower GST rates are needed as US tariffs are causing disruptions in other Indian industries," Bhargava said at Maruti Suzuki’s annual general meeting on Thursday.
What experts think
Analysts, too, are divided on whether GST cuts will truly revive hatchbacks. Some have inclined towards the argument that hatchback segment may not be the biggest beneficiary of the move, as the preference of consumers have changed.
"We believe a decline of 2-10% for vehicle prices will stimulate both first-time and replacement demand. We expect premium hatchbacks and compact SUVs to benefit the most, whereas larger SUVs/MPVs should maintain their momentum," analysts at Kotak Institutional Equities wrote in a 9 September note.
However, others feel that entry level cars will also see a boost due to increase in affordability.
"This move is expected to revive demand in the entry-level segment, which was gradually losing its grip in the Indian PV market," Saket Mehra, partner at Grant Thornton Bharat, said.
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