The ratings agency projects growth will slow from the second half of 2025–26, when GST cuts and rural demand drove higher volumes.
17 Feb 2026 | 2 Views | By Arunima Pal
India's automotive industry is on track for volume growth of 3–6% in the 2026–27 fiscal year, according to ICRA, as demand normalises after a period of above-trend expansion in the latter half of 2025–26. The ratings agency cited the end of GST reform tailwinds and a higher comparison base as ...
This is an Autocar Pro Plus article. Subscribe to continue reading.
India's automotive industry is on track for volume growth of 3–6% in the 2026–27 fiscal year, according to ICRA, as demand normalises after a period of above-trend expansion in the latter half of 2025–26. The ratings agency cited the end of GST reform tailwinds and a higher comparison base as the main factors behind the expected deceleration.
“The current fiscal has unfolded as a tale of two halves for the Indian automotive industry, with the first half witnessing subdued demand while the second half is seeing a strong recovery on the back of policy support and healthy rural demand,” said Srikumar Krishnamurthy, Senior Vice President and Co-Group Head of Corporate Ratings at ICRA. “Although demand sentiment remains optimistic, volumes are reaching levels that would weigh on the potential for outsized growth in 2026–27.”
Domestic passenger vehicle (PV) wholesale volumes are projected to grow 5–7% in 2025–26, supported by GST-related affordability gains and replacement demand. Utility vehicles have outpaced the broader segment, and the share of alternative powertrains — including CNG, hybrids, and electric vehicles — has been rising steadily.
In 2026–27, PV volume growth is expected to moderate to 4–6%, reflecting the higher base and elevated inventory at the system level.
The two-wheeler (2W) segment is estimated to grow 6–9% in 2025–26, aided by agricultural income, financing availability, and improved affordability. Growth is forecast to slow to 3–5% in 2026–27 on a higher base.
Demand at the lower end of the market remains under pressure due to higher vehicle prices and affordability constraints, while premium motorcycles and scooters have recovered. Electric two-wheeler penetration is expected to increase, though supply-side factors — including rare earth magnet availability — remain a risk.
Commercial vehicle (CV) wholesale volumes are projected to grow 7–9% in 2025–26, with light commercial vehicles (LCVs) and buses leading the expansion. Successive emission norm upgrades and safety mandates have pushed vehicle prices higher, which ICRA says constrains near-term growth, particularly for trucks.
For 2026–27, overall CV volume growth is forecast at 4–6%. Within that, medium and heavy commercial vehicles are seen growing 5–7%, LCVs 3–5%, and buses 7–9%, supported by replacement demand from state road transport operators.
EV penetration across segments is projected to rise materially by FY2030. Electric two-wheelers, three-wheelers, and buses are expected to lead adoption, with passenger cars and LCVs also seeing growth from a low base. ICRA attributed the outlook to continued policy support, expanding charging infrastructure, and a declining total cost of ownership.
“Over the medium term, vehicle electrification is expected to be a key structural theme, with EV penetration rising steadily across segments,” Krishnamurthy said.