India’s automotive sector enters FY2026 on a strong footing, with Y-o-Y sales growth projected in the 6-8 per cent range, reaffirming its position as one of the world’s largest auto markets. Two-wheelers remain a cornerstone of this strength as India is the global hub for their production, accounting for 35 per cent of global volumes, and domestic sales rebounded to 19.6 million units in FY 25, matching pre-pandemic SUVs continue to dominate passenger vehicle demand, reflecting evolving consumer preferences for larger, feature-rich vehicles.
Meanwhile, CNG and EV segments are steadily gaining share, signaling a gradual transition rather than abrupt disruption. Growth is supported by tax rationalisation, growing disposable income, and stronger rural indicators.
The outlook for the automotive sector remains balanced, supported by favourable domestic macroeconomic factors but tempered by rising global risks. On the domestic front, the expectation of the 8th Pay Commission could lead to an increase in disposable incomes, which may support demand for passenger and commercial vehicles.
In parallel, higher capital expenditure anticipated in the Union Budget is likely to accelerate infrastructure development- historically a key driver of vehicle demand. Component manufacturers also expect steady growth, aided by increasing localisation initiatives and resilient domestic consumption.
However, global uncertainties are emerging as a significant challenge. Recent increases in U.S. tariffs on auto parts and tyres, along with Mexico’s proposal to raise car import duties to 50 per cent, could affect India’s export competitiveness.
These trade measures may pressure margins for automakers and component suppliers, potentially requiring diversification into new markets and revisions to pricing strategies. Persistent supply chain disruptions and fluctuating currency movements further add to uncertainty around global demand and cost structures.
Skills Gap and Workforce Challenges
The industry’s transformation is driven by electrification, Industry 4.0, and connected mobility demands new skill sets. India plans to invest $7 billion by FY2028 to localise key EV components, while automakers integrate automation, IoT, and predictive maintenance, creating demand for automation engineers and digital manufacturing experts.
Connected vehicles and ADAS are driving demand for software developers, AI engineers, and cybersecurity specialists. Sustainability initiatives such as carbon neutral plants and recycling are boosting demand for skills in battery chemistry, robotics, and ESG compliance.
To achieve 30 per cent EV adoption by FY 2030, India will need 1-2 Lakh skilled EV professionals, but current training output stand at approximately 15,000 annually, creating an 80 per cent skills gap. This deficit stems from the fact that while India produces many engineering graduates, not all of them are employable for specialized EV roles requiring expertise in battery technology, power electronics, software integration, and cybersecurity skills largely missing from traditional curricula.
Gender diversity adds to the challenge as women make up just 16 per cent of employees in NSE-listed auto firms, workforce growth between FY2023 and FY2024 was 22 per cent, yet women’s participation rose only 3 per cent.
Key Budget Expectations
India’s automotive sector is rapidly building structured training ecosystems to meet the demands of electrification and digital transformation through Skill India, PMKVY 4.0, and Green Skill Development, supported by ASDC certifications. Over 42 universities now offer EV focused courses, while IITs and OEMs are setting up centers of excellence for battery innovation and mobility software. Digital platforms and OEM academies provide hands-on projects and PG certifications, ensuring a strong, industry aligned talent pipeline.
Despite these initiatives, a significant skills gap persists, making clearer policy direction and targeted interventions essential. Budget 2026 offers an opportunity to convert cyclical demand recovery into long term structural capability building by aligning skilling investments with future mobility requirements.
- Launching a Unified National EV Skills Mission: Budget 2026 presents an opportunity to consolidate fragmented skilling initiatives under a single National EV Skills Mission. Anchored by industry–academia partnerships, the Mission could fund regional Centres of Excellence aligned with emerging EV technologies and industry demand.
- Explore incentives for Apprenticeships and Outcome-Based Upskilling: Linking Industry 4.0 and skilling incentives to measurable outcomes such as placements, retention, and productivity gains could improve workforce readiness. Incentives for companies hiring and retaining trained apprentices would strengthen employer participation and employability.
- Strengthening Industry–Academia Collaboration: Structured partnerships between automotive companies and educational institutions can ensure curricula remain relevant to evolving EV and mobility technologies. Budget support for joint labs, faculty industry immersion, and sponsored capstone projects would improve the transition from learning to employment.
- Build a Future-Ready Curriculum: Universities and technical institutes should be encouraged to offer interdisciplinary programs combining mechanical engineering, electronics, software, and cybersecurity. Such future‑oriented curricula would address the growing demand for skills across electric and connected vehicle platforms.
- Promote Diversity in the Workforce: Setting inclusion-linked incentives for corporates can help improve gender representation across technical and manufacturing roles. Targeted skilling and return‑to‑work programs would support wider participation and long‑term career progression in the auto‑EV sector.
- Support Last-Mile EV Readiness and Green Skills: Setting inclusion-linked incentives for corporates can help improve gender representation across technical and manufacturing roles. Targeted skilling and return‑to‑work programs would support wider participation and long‑term career progression in the auto‑EV sector.
- Developing EV Skill and Innovation Clusters: Setting inclusion-linked incentives for corporates can help improve gender representation across technical and manufacturing roles. Targeted skilling and return‑to‑work programs would support wider participation and long‑term career progression in the auto‑EV sector.
- Developing EV Skill and Innovation Clusters: Sustained investment in faculty and trainer upskilling is essential to keep pace with rapid technological change. Industry sabbaticals and continuous certification programs can ensure teaching staff remain aligned with current and future EV technologies.
By embedding these priorities into Budget 2026, India can transform short-term growth into long-term competitiveness, creating a skilled, inclusive, and future-ready workforce that powers innovation and positions the country as a global leader in next-generation mobility.
