Mercedes-Benz India is optimistic that the recent GST rate cut will drive strong double-digit growth in the short term, but warns that the benefits may be short-lived due to macroeconomic challenges such as rising inflation, volatile exchange rates, and a weakening rupee. According to Santosh Iyer, Managing Director and CEO of Mercedes-Benz India, the average reduction of 5-6% in GST will have a positive impact on demand over the next 4 months, making luxury vehicles more affordable for customers. However, he cautions that this benefit will be eroded over time as prices adjust to inflation and exchange rates.
Iyer expects the company to experience double-digit growth in the near term, particularly in the September-November period, but notes that the full-year impact will likely be more modest, with growth possibly being flattish. The luxury car segment is highly import-dependent, making it more vulnerable to currency fluctuations compared to mass-market cars. Mercedes-Benz India has calculated that the weighted average gain from the GST cut for individuals with incomes above Rs 12 lakhs is 2.6%, with a tax rebate impact of 4.5% and a rate cut benefit of 0.17%. This translates to an additional Rs 10,000 in EMI, which could potentially lead to an upgrade in car purchases.
However, Iyer warns that the long-term outlook for the luxury segment is uncertain due to high duties and taxes, as well as road tax, which can be as high as 21% in some states. He notes that cars are significantly more expensive in India compared to other parts of the world, which could deter potential buyers. Overall, while the GST rate cut is expected to provide a short-term boost to demand, Mercedes-Benz India is cautious about the long-term prospects for the luxury car segment due to macroeconomic headwinds and structural challenges. The company will need to navigate these challenges to sustain growth and remain competitive in the Indian market.