India’s Passenger Vehicle Industry Set to Cross 5 Million Units in FY26 Despite Slowing Growth

India’s passenger vehicle (PV) industry is poised to reach a new milestone in FY26, with a projected cumulative volume of five million units across domestic and export markets, according to Crisil Ratings. This would mark the 4th year in a row of record-breaking sales. However, the annual growth rate is expected to moderate to 2–4%, a sharp contrast to the 25% surge seen in FY23 following the pandemic-induced pent-up demand.

Domestic Market Continues to Drive Volumes

In FY24, the domestic market contributed roughly 85% of total volumes, reaffirming its dominant position in the PV segment. Exports accounted for the remaining share. While India’s domestic appetite for vehicles continues to fuel the industry, Crisil notes a slowing pace of expansion, reflecting maturing demand and base effect pressures.

EV Segment Growth Slows Despite Launches and Cost Cuts

The electric vehicle (EV) segment, though a focal point for innovation and investment, has seen decelerated growth. EV penetration remains modest at 3–3.5%. Despite declining battery prices and several new model launches, adoption has been restrained by high upfront costs, limited charging infrastructure, and consumer concerns over driving range. This has confined EV demand largely to urban buyers looking for second cars.

Premium EVs Enter Market, but Impact May Be Limited

While premium global players such as Tesla are expected to enter the Indian market, their influence on the overall segment is likely to be constrained by steep import duties. The premium vehicle segment itself comprises less than 10% of the overall PV market, further minimising their disruptive potential in the near term.

Rural Demand May Rebound in FY26

The rural market, which had been under stress, is expected to witness a revival supported by forecasts of an above-normal monsoon and potential interest rate cuts. This recovery is likely to aid demand for entry-level cars, which remain a crucial segment for volume-based growth.

Export Growth to Slow Amid Global Headwinds

Crisil forecasts export growth to taper to 5–7% in FY26, owing to macroeconomic challenges and a possible tariff imposition of 25% by the United States. However, the impact of such tariffs is expected to be minimal. Indian automakers may explore alternative markets such as Mexico, the Gulf region, and South Africa to diversify export destinations and maintain momentum.

Read More: Passenger Vehicle Sales Dip 10% in February Amid Slowing Demand. 

Conclusion

While growth in India’s PV industry is expected to slow compared to earlier post-pandemic years, the overall outlook remains steady. Factors such as a robust UV pipeline, recovering rural sentiment, and efforts to address EV adoption barriers will shape the industry’s trajectory in FY26. The sector’s long-term evolution towards premium offerings and market diversification also signals structural transformation beyond cyclical trends.

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