India’s auto sector experienced a demand-driven recovery in FY26, marked by disparities between urban and rural markets, as per a Deloitte India report. Two-wheelers led the rebound, witnessing a 10.7% increase in wholesale volumes and a 13.4% rise in retail sales. Passenger vehicles continued the trend towards premiumization, with mid-size entry segments gaining traction while traditional entry-level segments faced challenges.
Commercial vehicles also showed growth, with a 12.6% year-on-year increase, fueled by goods-led upcycle supported by infrastructure projects and replacement demand. The report noted that electric vehicle (EV) adoption is on the rise, albeit unevenly spread due to cost factors and infrastructure limitations. The two-wheeler market particularly saw a surge in demand for premium motorcycles and scooters, with electric two-wheelers also witnessing growth.
Despite overall growth in EV adoption, challenges like pricing and infrastructure gaps have hindered widespread penetration. Kerala led in EV adoption with a 14.1% penetration rate, while states like Karnataka and Odisha showed increasing acceptance. The report highlighted pricing adjustments and GST rationalization in the latter half of FY26, reducing prices for sub-350cc motorcycles and narrowing price gaps with commuter bikes.
The auto sector faced pressure in entry-level demand, with urban markets driving growth through premiumization and feature enhancements. Policy developments, including the India-EU free trade agreement and new EV policies, were identified as key factors shaping the sector’s medium-term outlook. Passenger vehicles witnessed a disciplined recovery in wholesale and strong retail growth, reflecting consumer preferences for upgrades within familiar price ranges.
