India auto sector to see steady growth in 2026 but regulatory costs loom

After a record-breaking year, India’s automobile industry is entering 2026 on a relatively strong footing, with sales growth expected in the 6–8 per cent range, supported by policy measures and steady consumer demand.

The outlook is underpinned by policy support such as GST rationalisation, easing monetary conditions and income tax relief, which are expected to improve affordability and sustain demand across vehicle segments.

Passenger vehicle volumes rebounded sharply in 2025 after a slow start, aided by stronger urban demand, stable rural incomes and improved availability of financing. Sport utility vehicles continued to dominate demand, while compressed natural gas (CNG) and electric vehicles gained traction, indicating a gradual shift in the powertrain mix rather than a disruptive transition.

However, 2026 is expected to serve as a preparatory year ahead of tighter regulations. The industry faces rising compliance costs as it readies for Corporate Average Fuel Efficiency (CAFE) norms from 2027 and future emission standards, which could put pressure on margins and pricing.

Mandatory safety requirements, such as anti-lock braking systems (ABS) and combined braking systems (CBS) for two-wheelers, are already pushing up entry-level prices and could temper volume growth in price-sensitive segments.

Supply-side constraints remain a structural challenge. While localisation has improved, global uncertainties, tariffs and currency depreciation continue to pose risks, particularly for component-intensive and premium vehicles. Industry participants said pricing discipline by original equipment manufacturers (OEMs) and timely supply will be key to sustaining dealer confidence into the first half of 2026.

Investment cycles are also shifting, with automakers allocating capital towards electrification, charging infrastructure and platform upgrades, while continuing to scale conventional powertrains to meet near-term demand. This reflects a market that is transitioning gradually rather than pivoting sharply.

Overall, the sector’s outlook for 2026 remains positive but nuanced, with growth supported by policy tailwinds and consumption resilience, while increasingly shaped by regulatory readiness, cost pressures and consumer response to higher prices and new technologies.

“We expect GST benefits to fully unfold in 2026, driving industry growth to 7–8 per cent annually, which will fuel employment generation within the country. In line with market demand, in both domestic and export markets, we will expand our capacity to meet consumer needs,” Maruti Suzuki Managing Director and CEO Hisashi Takeuchi told PTI.

Takeuchi said 2025 marked a landmark year for Maruti Suzuki and the Indian automobile industry, noting that after a slow start, the sector moved into a high-growth trajectory following progressive GST reform.

“This mega reform rejuvenated the economy, and the passenger vehicle industry is poised to achieve its highest-ever calendar year volumes of 45 lakh units with a growth of 5 per cent over the previous year,” he said.

Federation of Automobile Dealers Associations (FADA) President C S Vigneshwar said dealers were confident of closing the 2025 calendar year with double-digit growth in both two-wheeler and passenger vehicle segments.

“With stable rural incomes and the ongoing marriage season, we expect this positive momentum to carry forward into the early part of 2026,” Vigneshwar said.

As per FADA’s latest Dealer Satisfaction Index for December 2025, 74 per cent of dealers across India expect good to very good growth over the next three months, covering the December–February period.

He said the momentum should sustain into the first half of 2026 if OEMs ensure timely stock availability and avoid abrupt pricing actions. However, steep price hikes from January could exert near-term pressure on demand.

Vigneshwar added that the mandatory implementation of CBS and ABS across all two-wheeler categories could raise entry-level prices by at least Rs 5,000, impacting consumer sentiment.

The Automotive Component Manufacturers Association of India (ACMA) also expects growth momentum to continue next year.

“The Indian auto component industry is expected to continue to grow steadily next year, with domestic demand and localisation providing support, even though global uncertainties and supply-chain risks persist,” ACMA Director General Vinnie Mehta said.

Tata Motors Passenger Vehicles Managing Director and CEO Shailesh Chandra said GST rationalisation, along with repo rate cuts and income tax benefits, will enhance accessibility and stimulate demand.

“We are uniquely positioned to lead in high-growth segments, including the continued surge in SUV demand, alongside the accelerating adoption of CNG and EV technologies,” he said.

Chandra added that 2026 offers strong growth potential, supported by brand strength, a robust launch pipeline and leadership in future-ready powertrains. On the upcoming CAFE III norms, he said the government is expected to frame them in a manner that supports a shift towards sustainable technologies.

Mahindra & Mahindra Auto Division CEO Nalinikanth Gollagunta said the company is focused on operational excellence and product innovation in 2026.

“On the electric front, our focus is twofold: ramping up operational capacity to 8,000 eSUVs per month and strengthening the public charging ecosystem,” he said, adding that 2026 will be a defining year for the company’s SUV leadership.

EY-Parthenon Partner and Future of Mobility Leader Som Kapoor said the industry is likely to grow 5–8 per cent in 2026, with forthcoming regulations such as BS7 and CAFE 2027 shaping long-term transition strategies for passenger vehicle OEMs.

Honda Cars India Vice President (Sales and Marketing) Kunal Behl said sustained SUV demand and gradual electrification will strengthen India’s position as a key global automotive market.

“Looking at 2026, we remain confident of sustained demand and steady growth, supported by a strengthening economy, easier access to financing, and supportive government policies,” he said.

Renault Group India CEO Stephane Deblaise said 2026 will be pivotal for the company with the return of the Renault Duster, adding that GST 2.0 reforms and progressive policies are creating a supportive environment.

A Toyota Kirloskar Motor spokesperson said the company remains committed to decarbonisation through a multipath approach offering multiple technologies aligned with customer needs and usage patterns.

Mercedes-Benz India Managing Director and CEO Santosh Iyer said GST 2.0 has had a strong impact on the economy, although the benefits may erode over the medium to long term due to foreign exchange pressures.

He said the luxury carmaker remains positive on the 2026 outlook, supported by new product launches in both internal combustion engine and battery electric vehicle segments.

BMW Group India President and CEO Hardeep Singh Brar said expectations for 2026 will be high after strong growth in 2025, adding that the focus should be on expanding the overall size of the luxury car market.

He noted that challenges such as rupee depreciation, global tariffs and supply chain constraints could continue into early 2026.

Audi India Head Balbir Singh Dhillon said the luxury segment recovered some lost ground in the latter half of 2025, aided by strong GST-led demand despite industry-wide challenges earlier in the year.

In the tyre segment, JK Tyre & Industries Managing Director Anshuman Singhania said the industry is expected to grow in the mid- to high-single-digit range in 2026, driven by stable OEM demand and a strong replacement cycle.

Commercial vehicle tyres are expected to see mid-single-digit growth, supported by infrastructure activity and freight movement, while passenger vehicle tyres, including those for two- and three-wheelers, are likely to grow at a high single-digit pace, he added.

(With inputs from PTI)