India’s automotive sector delivered a confident performance in 2025, registering growth of
8% Y-o-Y with 28.2 million vehicle registrations. EV sales crossed 2.3 million units, translating to 8% penetration, highlighting the sector’s accelerating structural transition. Category-wise growth remained broad-based: two-wheelers grew 7.24%, passenger vehicles (PVs) 9.70%, commercial vehicles (CVs) 6.71%, and tractors 11.52%.
Growth participation was well distributed across geographies. Urban retail grew 8.20% while rural markets expanded 7.31%. Notably within PVs, rural demand outperformed urban markets, growing 12.31% versus 8.08%, underlining the deepening spread of personal mobility beyond metros and Tier-I cities.
However, 2025 unfolded as a tale of two halves. The January–August period remained subdued, despite supportive macro cues such as direct tax relief announced in the Union Budget and RBI’s cumulative rate easing through the year. Consumers stayed value-conscious, and financier approvals remained selective in pockets, resulting in uneven retail conversions across regions and segments.
The inflection point came from September onwards, driven by the landmark GST 2.0 rate rationalization. Meaningful tax reductions for mass-market categories—small cars, two-wheelers (up to 350cc), three-wheelers, and key commercial vehicle segments—improved affordability and lifted consumer sentiment. This, combined with festive-season demand, led to a clear upshift in volumes during September–December 2025, helping the sector close the year on a stronger footing.
These developments have further accelerated the structural transformation of the industry, particularly in electric mobility, supported by rising demand for energy-efficient transportation and the government’s sustainability push. The EV segment, having gained meaningful traction, is now looking for policy continuity, continued fiscal incentives, and further GST rationalisation to unlock mass adoption, especially among middle-income consumers.
A key enabler for wider EV adoption remains charging infrastructure. Industry players continue to call for a comprehensive national roadmap for charging stations across both urban and rural areas to support scale-up and consumer confidence.
Beyond EVs, auto manufacturers are seeking rationalisation of duty structures on auto components. Industry leaders argue that tariff uncertainty has slowed investments in advanced manufacturing technologies. Simplifying GST rates on auto parts could enhance domestic competitiveness and strengthen India’s position in global automotive supply chains.
Traditional OEMs are also looking for a supportive macro environment that sustains retail demand, particularly in entry-level and rural-focused segments. Measures that increase disposable income—such as further tax reliefs—are viewed as important indirect drivers of vehicle sales.
Continued investment in road and highway infrastructure remains another critical expectation, given its strong linkage with CV and PV demand.
As vehicles become increasingly software-defined and connected, the industry is emphasizing the need for skilling and up-skilling in electronics, software, AI, and battery technologies. In parallel, companies are seeking stronger R&D incentives for clean mobility solutions, including EV platforms, hydrogen technologies, and advanced driver-assistance systems (ADAS).
Outlook:
Union Budget 2026 represents a pivotal opportunity for both the auto and EV sectors. While the EV ecosystem seeks policy stability, tax relief, and incentives for local manufacturing, the broader auto industry looks for clearer duty structures and demand-stimulating measures, particularly for rural India. With the right policy support, the sector can continue to play a central role in India’s transition toward greener, more sustainable mobility.