Budget to Support CV Demand, EV Adoption; Auto Sector Impact Neutral to Mildly Positive: ICRA

Higher government spending on infrastructure and public mobility announced in the Union Budget 2026-27 is expected to support demand for commercial vehicles, particularly multi-axle trucks and tippers, while the overall impact on the automotive sector is likely to be neutral to mildly positive, according to rating agency ICRA.

The Union Budget raised capital outlay on infrastructure to ₹12.2 trillion for FY27 (Budget Estimates), an 11.4% year-on-year increase, a move that is expected to aid freight movement, construction activity and commercial vehicle (CV) volumes. ICRA said the increase in infrastructure spending should particularly benefit demand for heavy-duty trucks and tippers, which are closely linked to road construction, mining and public works projects.

“The higher infrastructure spend will support commercial vehicle demand, especially in the multi-axle truck and tipper segments,” said Kinjal Shah, Senior Vice President and Co-Group Head, Corporate Ratings at ICRA Limited. She added that the expanded procurement of electric buses would create additional demand opportunities for original equipment manufacturers (OEMs).

As part of the Budget announcements, the government has proposed procurement of 4,000 electric buses for the development of Purvodaya tourism destinations, a move that is expected to support public electric mobility and improve capacity utilisation for electric bus manufacturers. Shah also noted that procurement of medium and heavy vehicles by the defence sector would provide demand stability for CV manufacturers. “Overall, the Budget offers balanced support for electrification, capacity creation and momentum in the CV market,” she said.

Jitin Makkar, Senior Vice President and Group Head, Corporate Ratings at ICRA Limited, said the Union Budget was largely neutral to mildly supportive, following recent policy measures that had already boosted demand.

“Following the recent GST rate rationalisation, which provided a near-term boost to automotive demand, the Budget continues the government’s focus on strengthening agricultural cash flows through rural infrastructure development and farmer welfare schemes,” Makkar said. He added that these measures should help sustain rural demand, which is a key driver for two-wheelers, tractors and entry-level passenger vehicles.

ICRA also highlighted that higher allocations under the Production Linked Incentive (PLI) schemes for automobiles and auto components would support manufacturing competitiveness and localisation efforts. Continued funding under the PM E-Drive scheme is expected to aid electric vehicle adoption across segments, while the proposed creation of rare earth corridors could improve supply security for critical materials used in EVs and auto components.

In addition, credit support through the Trade Receivables Discounting System (TReDS) platform is expected to ease liquidity constraints for MSME auto component manufacturers, helping stabilise the supply chain.

The auto industry has been closely tracking policy signals from the Budget amid slowing urban demand, margin pressures and rising competition, particularly in electric mobility. ICRA said the Budget’s emphasis on infrastructure-led growth, electrification and manufacturing support should help provide demand visibility for key segments, even as near-term challenges persist.