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India's Auto Sector Growth to Slow Down

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  Published in Automotive and Transportation on Wednesday, February 18th 2026 at 6:54 GMT by Zee Business
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Mumbai, February 18th, 2026 - India's automotive sector is poised for continued growth, but at a more subdued pace, according to a new report released today by ICRA Limited. The credit rating agency projects auto volumes to increase by 4-6% in fiscal year 2027 (FY27), a noticeable deceleration from the robust 8-12% growth experienced in FY23 and FY24. This moderated outlook reflects a confluence of economic headwinds impacting consumer spending and broader market conditions.

The Indian auto industry has been on a recovery trajectory since the disruptions caused by the COVID-19 pandemic. However, the initial bounce-back is now giving way to a more realistic, sustainable growth rate. Several key factors are contributing to this shift. Rising vehicle prices, fueled by increased input costs and technological advancements, are making car ownership less affordable for a wider segment of the population. Furthermore, consistently higher interest rates - a consequence of global monetary tightening aimed at curbing inflation - are increasing the cost of auto loans, dampening demand. Persistent inflationary pressures across various sectors of the economy are also squeezing disposable incomes, leaving consumers with less money to spend on big-ticket items like automobiles.

Segment-Specific Outlooks:

ICRA's analysis reveals a nuanced picture across different vehicle segments. The passenger vehicle (PV) segment is expected to remain the primary engine of growth, although even here, the pace will be slower than in recent years. Demand for SUVs and premium hatchbacks continues to be strong, driven by changing consumer preferences and a desire for enhanced features and comfort. However, affordability concerns may limit the growth potential of these segments. A key trend within the PV segment is the increasing adoption of hybrid vehicles, providing a bridge between traditional internal combustion engines (ICE) and fully electric vehicles (EVs).

Two-wheeler (2W) sales, which have lagged behind the PV segment in recent years, are forecast to recover gradually. The recovery is contingent on several factors, including a revival of rural income and a reduction in fuel prices. Rural India is a crucial market for 2W sales, and a good monsoon season and healthy agricultural output are vital for boosting demand. The 2W segment is also witnessing a growing interest in electric scooters and motorcycles, presenting both opportunities and challenges for manufacturers.

Conversely, the Commercial Vehicle (CV) segment is predicted to be the slowest-growing. While infrastructure development projects are expected to drive some demand, the overall outlook remains cautious. Fleet operators are becoming more discerning in their purchasing decisions, prioritizing efficiency and total cost of ownership. The replacement demand cycle, which historically fueled CV sales, is also expected to be extended due to improved vehicle lifespan and maintenance practices.

The Electric Vehicle Revolution:

ICRA underscores the transformative impact of the ongoing shift towards electric vehicles (EVs). While EVs currently represent a relatively small portion of overall auto sales, their growth rate is accelerating rapidly. Government initiatives such as production-linked incentives (PLI) and subsidies are playing a crucial role in promoting EV adoption. However, challenges remain, including the limited availability of charging infrastructure, high battery costs, and range anxiety. ICRA believes that continued investment in charging infrastructure and advancements in battery technology will be essential for unlocking the full potential of the EV market.

Key Influencers & Future Outlook

According to ICRA, several key factors will significantly influence the auto industry's performance in the coming months and years. Rural income will be a crucial determinant of demand for two-wheelers and entry-level passenger vehicles. Fuel prices, which have a direct impact on the cost of vehicle ownership, will also play a vital role. Finally, government policies related to vehicle emissions, safety standards, and electric vehicle promotion will shape the industry's trajectory.

The agency expects a period of consolidation in the industry, with manufacturers focusing on improving operational efficiency and investing in new technologies. The increasing complexity of vehicles, driven by the integration of advanced driver-assistance systems (ADAS) and connectivity features, will require manufacturers to enhance their technological capabilities and strengthen their supply chain resilience. Competition is expected to intensify, particularly in the EV segment, as new players enter the market.

While the growth outlook for FY27 is more moderate than in previous years, the Indian auto industry remains a dynamic and promising sector. Adapting to changing consumer preferences, embracing new technologies, and navigating economic headwinds will be critical for success in the years ahead.