Bajaj Auto's GST Incentive: A Catalyst for Market Share Realignment in India's Two-Wheeler Sector

India's two-wheeler market is on the cusp of a seismic shift as Bajaj Auto leverages a historic GST reduction to reshape its competitive positioning. Effective September 22, 2025, the Indian government slashed the GST rate on motorcycles under 350cc from 28% to 18%, a move Bajaj Auto has fully passed on to consumers through price cuts of up to ₹20,000 on key modelsBajaj Auto Extends GST Discounts on Sub-350CC Motorcycles, Adds 50% Financing Benefits^[1]. This strategic maneuver, paired with the “Hattrick Festive Offer” (zero processing charges and enhanced insurance benefits), positions Bajaj to capture a significant share of the mass-market segment, which accounts for 98% of India's two-wheeler salesBajaj and KTM bikes under 350cc to get cheaper with GST cut^[2].

The GST Cut: A Strategic Play for Affordability and Volume

The reduced GST rate directly targets India's commuter-centric two-wheeler market, where affordability is a critical driver. For instance, the Pulsar NS125 ABS and Pulsar N160 USD models in Delhi now offer savings of ₹12,206 and ₹15,759, respectivelyBajaj Auto Extends GST Discounts on Sub-350CC Motorcycles, Adds 50% Financing Benefits^[1]. These price reductions are amplified by Bajaj's financing incentives, which extend 1.5 times the GST savings to buyers, effectively lowering the total cost of ownership. By aligning with the government's goal of making essential mobility more accessible, Bajaj is not only addressing immediate demand but also positioning itself to outperform rivals in a segment dominated by Hero MotoCorp and Honda.

Hero and Honda, which collectively hold 55% of the under-350cc market shareTwo wheeler Sales in India FY 2023-24 | Analysis of Top Brands^[3], face a critical challenge: their pricing strategies have not yet matched Bajaj's aggressive pass-through of GST benefits. In August 2025, Hero's market share stood at 28.68%, while Honda's was 24.10%TVS Motor Gains Market Share in First Half 2025; Hero, Honda, Bajaj Lose Out^[4], both trailing Bajaj's 11.15% but benefiting from established brand loyalty. However, Bajaj's targeted incentives could erode these gaps, particularly in urban markets where price sensitivity is acute.

Competitor Responses and Market Dynamics

The GST cut has already triggered a ripple effect across the industry. Royal Enfield, for example, reduced prices on its 350cc models by up to ₹22,000GST-led Price Cut: Bajaj Auto Set For Higher Sales ... - Stocktwits^[5], while AARI (Adishwar Auto Ride India) adjusted pricing for international brands like Keeway and ZontesAARI Announces Price Reduction for Models Under 350cc^[6]. These moves suggest a broader industry shift toward affordability, but Bajaj's holistic approach—combining price cuts, financing benefits, and insurance perks—gives it a structural edge.

Conversely, the 40% GST hike on motorcycles above 350ccNew GST rates for bikes & scooters: From Triumph, bullet, Harley to Bajaj, check what gets cheaper and what's costlier^[7] has created a regulatory headwind for premium models like the Dominar 400 and KTM 390 Duke. This “sin tax” not only limits Bajaj's own product portfolio but also creates a pricing vacuum in the premium segment, which competitors like Royal Enfield and KTM may struggle to fill.

Historical Context and Future Projections

Historical data from FY2024–2025 reveals a pattern of market share realignment following GST adjustments. For example, Honda's market share grew from 23.36% to 25.37% in FY25 as it adapted to tax changesHonda, TVS & Suzuki - The Gainers of FY25 Two-Wheeler Market^[8], while Hero's dominance waned due to macroeconomic pressuresTwo-Wheeler Market Share Trends in India FY25^[9]. Bajaj's current strategy mirrors these dynamics, with its 12% market share in FY25Two wheeler Sales in India FY 2023-24 | Analysis of Top Brands^[10] poised to expand if it can convert price-sensitive buyers into loyal customers.

Analysts project that the GST cut will drive a 7.71% year-on-year growth in under-350cc segment salesIndia Two-Wheeler Market Unlocking Growth Potential^[11], with Bajaj capturing a disproportionate share of this growth. The company's focus on commuter models (e.g., Pulsar series) aligns with India's urbanization trends, where two-wheelers remain the primary mode of transport for millions.

Risks and Strategic Considerations

While the GST incentive is a near-term boon, Bajaj must navigate long-term risks. Rajiv Bajaj, the company's managing director, has criticized the policy as a “tactical hit but a strategic miss,” arguing that the 40% GST on premium bikes stifles innovation and export potentialRajiv Bajaj Says GST Cut Is A Tactical Hit But A Strategic Miss^[12]. Additionally, the company's domestic sales in August 2025 declined by 13.65% YoYTVS Motor Gains Market Share in First Half 2025; Hero, Honda, Bajaj Lose Out^[4], highlighting vulnerabilities in its retail network.

To sustain momentum, Bajaj must balance affordability with margin preservation. The company's recent foray into electric two-wheelers, which remain taxed at 5%GST on Bikes and Two-Wheelers in India: Rates, HSN Codes in 2025^[13], could also serve as a growth lever, particularly as the pre-owned vehicle market expands5 Trends That Are Quietly Reshaping India’s Two-Wheeler Industry^[14].

Conclusion: A Win-Win for Investors and Consumers

Bajaj Auto's GST incentive is a masterstroke in a highly competitive market. By passing on tax savings and enhancing financing benefits, the company is not only boosting near-term demand but also repositioning itself as a leader in India's commuter-centric two-wheeler ecosystem. For investors, this strategy offers a compelling mix of volume growth and market share gains, particularly as rivals scramble to match Bajaj's agility. However, the long-term success of this initiative will depend on the company's ability to innovate in the premium and electric segments while navigating regulatory headwinds.