GST reset brings balance back to India's commercial vehicle market: Antique - Business Standard

After years of distortion driven by tax arbitrage rather than freight fundamentals, India’s commercial vehicle (CV) industry appears to be moving towards a more sustainable equilibrium. Insights from a recent Antique Stock Broking note, based on discussions with a senior board member of a notable fleet operators’ association, suggest that the recalibration of the GST regime could mark a structural turning point for the sector, restoring pricing discipline, improving freight rates and reviving the role of small fleet operators.

From demand-led buying to tax-driven excess

The roots of the current imbalance can be traced back to the post-GST and post-Covid phase. Prior to GST, fleet operators paid a combination of excise duty, VAT and service tax, with no comprehensive input tax credit (ITC) framework. Vehicle purchases were therefore more closely aligned with actual freight demand, and small operators, those owning fewer than 10 trucks, accounted for nearly 70-80 per cent of the medium and heavy commercial vehicle (MHCV) market.

That equation changed after GST, analysts said. Operators could choose between a 5 per cent GST under the reverse charge mechanism (RCM) or a 12 per cent GST under the forward charge mechanism (FCM), which allowed ITC claims. Following Covid-related disruptions, large fleet operators overwhelmingly opted for the 12 per cent FCM route, claiming ITC benefits on truck purchases. This created strong incentives to buy vehicles irrespective of freight demand. As large players expanded their owned fleets and reduced reliance on hired trucks, capacity ballooned while demand lagged, pushing freight rates lower and crowding out smaller owner-operators.

Antique noted that this phase of irrational buying is now drawing to a close. With effect from September 22, 2025, GST under FCM has been raised to 18 per cent, while GST on new CV purchases has been reduced from 28 per cent to 18 per cent. The net effect is the elimination of tax arbitrage linked to ownership. Purchases, going forward, are expected to be driven by utilisation and demand rather than balance-sheet optimisation.  ALSO READ | TMPV, Adani Power, ONGC, 5 other largecaps with 'Bearish Engulfing Pattern'

Small operators and LCVs back in focus

This shift is particularly major for small fleet operators. According to the brokerage, their operating costs are 4-8 per cent lower than those of large fleet players, giving them a natural advantage once tax-driven distortions fade. Improved freight rates over the medium term could encourage their gradual re-entry, aided by rising activity in the secondary market as large fleets offload idle trucks.

Demand dynamics, however, are likely to diverge across segments. While MHCV demand is expected to remain stable and closely linked to freight rates, the light commercial vehicle (LCV) segment is emerging as a clear beneficiary of GST rationalisation. Antique expects demand in this segment to rise meaningfully, driven by last-mile logistics, hub-and-spoke supply chains, e-commerce and FMCG distribution. Improved affordability under the revised tax regime further strengthens the case for LCVs and intermediate commercial vehicles as medium-term structural winners.  ALSO READ | Motilal Oswal sees strong growth visibility for Brigade Ent; retains 'Buy'

Replacement demand and efficiency gains offer support

The brokerage also highlights supportive undercurrents from replacement demand. A considerable number of vehicles were purchased during the 2015-2017 period ahead of the GST rollout and the BS4-to-BS6 transition. These trucks are now entering the replacement cycle, providing a baseline demand cushion even as fresh buying becomes more disciplined.

Operational efficiency remains another area of opportunity. Better highways, e-way bills and technology-led fleet management have reduced turnaround times, though average daily utilisation of 350-400 km still trails the potential of 600-650 km. This headroom could benefit organised players over time.

From an OEM perspective, competitive differentiation is increasingly shifting away from headline pricing to reliability, service uptime and total cost of ownership. Antique observes evolving dynamics among major manufacturers, with narrowing price gaps and sharper focus on after-sales support.