India’s automotive industry, which contributes 7.1% to the country’s GDP and nearly half of its manufacturing output, is entering a new growth phase backed by regulatory reform and strong foreign collaboration. The sector produced 28 million vehicles in 2024, up 8 per cent year-on-year, while exports surpassed 4.5 million units, according to a whitepaper by Grant Thornton Bharat and the Indo–Japan Chamber of Commerce and Industry (IJCCI).
Titled “Navigating Change: GST 2.0, Customs, and FTA Impacts on the India–Japan Auto Sector,” the report outlines how taxation reform, customs changes, and trade partnerships are reshaping the industry’s competitiveness. With USD 43.3 billion in cumulative investments, Japan remains India’s fifth-largest foreign investor and a key force in the automotive ecosystem.
The rollout of GST 2.0 in September 2025 has streamlined tax structures and boosted affordability across vehicle categories. Under the revised regime, small cars and motorcycles under 350cc attract 18 per cent GST, down from 28 per cent plus cess, trimming prices by up to Rs 1 lakh for select models. Premium vehicles now face a 40 per cent flat rate, while electric vehicles continue at 5 per cent, reaffirming policy support for clean mobility.
Automakers have already recorded a surge in bookings, with the small car segment reporting nearly 50 per cent growth. The Union Budget 2025 complemented GST changes with supply-chain measures, including customs duty exemptions on lithium-ion battery scrap and critical minerals like lead and copper. These steps aim to strengthen domestic manufacturing, secure raw materials, and expand employment in the EV value chain.
“The convergence of GST 2.0 and targeted customs incentives marks a defining moment for India’s automotive sector,” said Sohrab Bararia, Partner, India Investment Advisory, Grant Thornton Bharat. He noted that the reforms enhance cost competitiveness and reinforce India’s position as a manufacturing and export hub for Japanese automakers.
The India–Japan Comprehensive Economic Partnership Agreement (CEPA) and the India–Japan Digital Partnership (IJDP) are also driving collaboration in electric and connected vehicles, as well as AI-led manufacturing. Skill programmes such as the Japan-India Institute for Manufacturing (JIM) and Japanese Endowed Courses (JEC) have trained over 30,000 Indian engineers to Japanese manufacturing standards, creating a talent base for advanced production.
Trade schemes like MOOWR, EPCG, Advance Authorisation, and RoDTEP continue to underpin export competitiveness by supporting duty-free or concessional imports of capital goods and components.
“There is strong synergy between India and Japan in hybrid and electric vehicles and precision components,” said Suguna Ramamoorthy, Secretary General, IJCCI. “Reforms under GST 2.0 and CEPA strengthen R&D and joint production while advancing the Atmanirbhar Bharat vision.”
During the first nine months of FY2025, India’s car exports to Japan reached USD 616.45 million, while auto component exports stood at USD 171.72 million. Industry observers believe sustained policy alignment and India–Japan collaboration will define the next phase of growth, driving competitiveness, technology transfer, and a more sustainable mobility future.
