Indian Auto Industry Expected to Record 3–6% Volume Growth in FY2026–27, Says ICRA

India’s automotive sector is expected to enter a phase of steady expansion after a period of strong recovery witnessed during FY2025–26.

According to ICRA, industry volumes are likely to grow at a moderate pace in FY2026–27 as demand conditions normalise and the high base effect begins to influence growth rates across vehicle categories.

Industry Growth Outlook

ICRA estimates overall wholesale vehicle volumes to expand by around 3–6% year-on-year in FY2026–27. The moderation follows a stronger performance in the latter part of FY2025–26, when policy support, improved rural demand and favourable financing conditions contributed to higher sales momentum.

While demand sentiment remains stable, the industry is approaching elevated volume levels, which may limit the scope for rapid expansion in the coming financial year.

Passenger Vehicle Segment Trends

Domestic passenger vehicle (PV) volumes are projected to grow by approximately 4–6% in FY2026–27. Growth is expected to continue, though at a measured pace due to higher inventory levels and a strong comparison base.

Utility vehicles are likely to remain a key contributor to sales, supported by changing consumer preferences and continued model introductions. Additionally, adoption of alternative powertrains such as CNG, hybrid and electric vehicles is gradually increasing, driven by regulatory measures and evolving buyer choices.

Two-Wheeler Industry Outlook

The two-wheeler segment is undergoing a gradual recovery phase. After an estimated growth of 6–9% in FY2025–26, expansion is expected to ease to around 3–5% in FY2026–27.

Rural income trends and financing availability have supported recent demand recovery. However, affordability pressures continue to affect entry level motorcycle sales.

In contrast, premium motorcycles and scooters have shown improved demand, reflecting a shift towards higher-value products.

Commercial Vehicle Segment Expectations

Commercial vehicle (CV) volumes are forecast to grow by about 4–6% in FY2026–27, supported by ongoing economic activity and infrastructure development.

Bus sales are expected to outperform within the segment, with projected growth of 7–9%, largely driven by replacement demand from state transport undertakings.

Meanwhile, regulatory-driven price increases may limit stronger growth in truck volumes despite stable replacement demand.

Structural Trends Shaping the Sector

ICRA notes that the industry is navigating structural changes influenced by evolving consumer behaviour, technological advancements and sustainability considerations. Electrification is expected to remain a long-term theme, with electric vehicle penetration gradually increasing across multiple vehicle categories.

Premiumisation, alternative fuel adoption and technology-led product innovation are likely to continue shaping market dynamics over the medium term.

Conclusion

India’s automotive industry is expected to maintain growth momentum in FY2026–27, though at a more moderate pace compared with the recovery phase seen earlier. Stable demand conditions, gradual electrification and segment-specific drivers are likely to support expansion, while higher base effects and pricing pressures may keep overall growth measured across vehicle categories.

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