India’s automobile sector is projected to see a slowdown in growth in the fiscal year 2027 following a robust expansion in the previous year. The growth in demand was fueled by GST reductions, increased affordability, and a resilient economy, according to a report by ICRA. The report highlighted that GST changes played a key role in driving demand, particularly benefiting two-wheelers and commercial vehicles.
The commercial vehicle segment experienced a significant upturn, supported by GST rate cuts, higher freight movement, and infrastructure development. Wholesale volumes for commercial vehicles surged by 23.8% year-on-year in February 2026, with domestic wholesale volumes also showing a 12.5% growth in the first 11 months of the previous fiscal year. Retail volumes remained strong, with a 28.9% year-on-year increase in the previous month, driven by medium and heavy commercial vehicles.
The report predicted that the commercial vehicle segment would surpass earlier growth estimates for FY26, but growth is expected to moderate to 4-6% in FY2027. Despite a healthy demand momentum, challenges such as high funding costs and a preference for pre-owned vehicles, especially in the LCV segment, could pose near-term constraints, the report cautioned.
The two-wheeler segment witnessed a broad-based recovery, with volumes expected to hit a multi-year peak in FY26. This growth was attributed to improving rural demand, better financing options, and increased affordability due to GST revisions. Domestic wholesale volumes for two-wheelers are forecasted to grow by approximately 9% in FY26 before easing to 3-5% in FY27, reflecting a higher base. The report emphasized that underlying demand would remain supported by replacement cycles and robust rural incomes.
Looking ahead to FY27, the report anticipates a normalization of growth due to a higher base and challenges from global uncertainties and rising input costs. However, investments in electrification, sustained replacement demand, and improving rural incomes are expected to bolster the sector in the medium term, the report concluded.
