The Indian automotive industry has entered a structurally improved yet a transitional phase, post the recent GST rationalisation measures. After years of continued rise in vehicle prices amidst regulatory needs, technological upgradation, safety features and commodity inflation, the GST rate cut was a welcome move for the sector at large. The measures have not only altered the pricing of vehicles, but also the affordability, consumer behavior and demand elasticity in general.
With the festivities coinciding, the auto dealers ran multiple promotions and liquidated a large part of vehicle inventory across passenger vehicles and two-wheeler segments. In the commercial vehicles segment, enquiries with fleet operators rose sharply, leading to healthy volume growth in Q3 FY2026.
Following a muted growth in H1 FY2026, the overall auto industry recorded around 18 per cent YoY sales growth in Q3 FY2026 (Source: SIAM) reflecting unlocking pent-up demand and renewed consumer sentiments. The growth was also complemented by healthy rural output post favourable monsoons and a conducive financing environment.
In many ways, the auto industry turned cautiously optimistic in recent months as the measures acted as a powerful reset for the industry by addressing the important aspects of affordability on the structural front than merely boosting sentiments of the customers.
In this background, the upcoming Union Budget holds importance as the industry seeks reforms focusing on affordability, sustenance of demand and a durable growth cycle. A sustained growth in disposable income will support the country’s large population (importantly young ones), which has a high propensity to spend benefiting makers of two-wheelers, passenger vehicles and ride-hailing service providers.
Some of the key expectations from stakeholders include higher budgetary allocation towards investments in road and highway infrastructure, focus on enhancing last-mile connectivity, thrust on localisation, employment generation, skill development, improvement in household and rural cashflows, sustainability push (ecosystem-driven than consumption), phased incentives tied to CAFÉ compliance milestones etc.
Given the gloomy global conditions amidst geo-political tensions in certain key markets and US tariff-led uncertainties, the auto industry also seeks supportive measures for vehicle and component exporters in the form of export incentives. This apart, reforms around vehicle scrappage, addressing supply-chain related concerns, efficient logistics and research and development (R&D) activities can accelerate industry growth.
In recent years, the government has increasingly focused on clean transportation fuel (like bio-fuel, ethanol blends, bio-CNG, green hydrogen etc.). This has resulted in rising share of CNG, EVs and hybrids in the last two years. In the budget, alternative fuels aligning with climate goals and cleaner air targets is expected to remain a focus area.
Specifically, to enhance the pace of vehicle electrification, reforms like duty exemptions on import of critical parts (like battery and battery components), extension of PM E-Drive subsidies beyond March 2026, long-term concessional financing options, expansion of Production Liked Incentives (PLI) to broader EV ecosystem, dedicated funds for charging infrastructure and public awareness campaigns, capital goods incentives for EV component manufacturing promoting Indian innovation, etc. are some of the expectations from the budget.
For the e-bus segment, scaling up of payment security mechanism for bus projects, incentives for private operators, budgetary allocation for fast charging, high-capacity chargers, and depot electrification are broader expectations.
While the wish list is long, the policy reforms have historically aided automotive industry in the form of push on infrastructure, manufacturing incentives, clean energy, etc. Given the sector’s importance in generation of sizeable employment opportunities (especially skilled) and its importance to energy security and climate goals, the budget expectations broadly align with economic and sustainability priorities.
A supportive policy framework can create conducive conditions for the auto sector enabling it to position itself as a global manufacturing and export powerhouse.
