Rating agency ICRA has projected modest growth for India’s passenger vehicle (PV) industry in fiscal year 2026, estimating a volume increase of 3-6 per cent year-on-year. This tempered outlook follows an anticipated 6-9 per cent growth in FY2025 and reflects a combination of a high base effect, moderating consumer demand, and evolving industry trends, according to a report released earlier this month.
The passenger vehicle sector, which hit an all-time high of approximately 4.1 million units in FY2024, has been buoyed in recent years by a preference for personal mobility and stable semiconductor supplies. However, ICRA analysts suggest that the growth momentum is likely to slow in 2026 as pent-up replacement demand - a key driver post-pandemic - continues to wane. Additionally, dealership inventory levels, which stood at 55-58 days by December 2023, indicate a potential softening in retail demand, a trend that could persist into the next fiscal year.
Shamsher Dewan, Senior Vice-President and Group Head of Corporate Ratings at ICRA, noted, “While underlying demand drivers such as rising incomes and low vehicle penetration remain supportive, the passenger vehicle segment is transitioning from a phase of robust recovery to one of steadier, more moderate growth. The high base from recent years and shifting consumer priorities are key factors shaping this outlook.”
The report also highlights the growing influence of electrification on the sector. ICRA predicts that electric vehicles (EVs) could account for around 15 per cent of passenger vehicle sales by 2030, driven by government subsidies, improved charging infrastructure, and increasing consumer acceptance. However, in the near term, the transition to EVs may temper overall growth as manufacturers balance investments in new platforms with demand for traditional internal combustion engine (ICE) vehicles.
Other challenges include potential supply chain disruptions, such as those seen with Red Sea shipping routes in 2024, which have doubled or tripled ocean freight rates. These pressures could impact costs for automakers reliant on imported components, further influencing pricing and demand in 2026.
Despite the modest forecast, ICRA remains optimistic about the long-term trajectory of the automotive industry, projecting a compound annual growth rate (CAGR) of 6-9 per cent over the medium to long term. For 2026, however, the passenger vehicle segment appears poised for a year of cautious expansion as it navigates a maturing market and an accelerating shift toward sustainable mobility.