India’s automobile industry reported a strong performance in the October-December 2025 quarter, supported by GST 2.0 rate rationalisation, improved affordability, a revival in rural demand, and sustained festive momentum. With volumes recovering across key segments, industry attention has now shifted to the Union Budget 2026-27, scheduled to be presented on February 1.
While demand conditions have improved, rising input costs and supply-chain constraints remain concerns. Industry experts say Budget 2026 will be crucial in sustaining growth and providing policy clarity, especially for electric vehicles (EVs).
Broad-Based Recovery Across Auto Segments
The post-GST 2.0 environment has supported growth across passenger vehicles, two-wheelers, and commercial vehicles, aided by easier financing conditions and improved consumer sentiment. The premiumisation trend, particularly in SUVs, has continued, contributing to higher average realisations.
However, experts caution that rising raw material costs could put pressure on margins in the coming quarters, underscoring the need for stable and predictable policy support.
Need to Preserve GST Advantage for EVs
Industry experts emphasise that while EVs continue to attract a 5% GST, recent GST adjustments in certain internal combustion engine (ICE) segments have narrowed the effective tax gap.
They argue that maintaining a clear GST advantage for EVs is essential to sustain affordability and investment momentum. This includes clarity on GST treatment for:
- EV charging infrastructure
- Charging services
- Battery swapping
According to experts, a consistent tax differential is critical to supporting India’s EV transition while ICE demand revives under GST 2.0.
Focus EV Incentives Where Impact Is Highest
Experts also stress that demand incentives under the PM E-DRIVE scheme should remain focused on segments where electrification delivers the greatest benefits. These include:
- Public transport
- Shared mobility
- Commercial fleets
- Last-mile delivery
Faster electrification in these segments is seen as vital to achieving the government’s 30% EV penetration target by 2030.
Key Trends Shaping the Auto Sector
- Strong recovery in auto volumes following GST 2.0 rate rationalisation
- Renewed growth across passenger vehicles, two-wheelers, and commercial vehicles
- Continued premiumisation, led by SUVs
- Increasing emphasis on EV localisation and domestic manufacturing
Major Challenges Facing the Industry
Despite the recovery, the sector continues to face structural challenges:
- Rising raw material costs impacting profitability
- Shortages of rare-earth magnets, affecting EV production
- Narrowing GST gap between EVs and ICE vehicles
- High dependence on imports for critical EV components
What Budget 2025 Delivered
The auto industry noted several supportive measures in Budget 2025, including:
- Removal of import duties on 35 key EV battery components and critical minerals
- ₹2,819 crore allocation under the Auto PLI scheme for domestic manufacturing
- ₹4,500 crore allocation for the PM E-DRIVE scheme to expand EV charging infrastructure
- Increase in MSME investment and turnover limits by 2.5 times, along with enhanced credit guarantees
- Increase in the tax-free income slab to ₹12 lakh, supporting vehicle demand
- Support for R&D in lightweight materials, advanced components, and EV safety technologies
What the Auto Industry Expects from Budget 2026-27
Looking ahead, industry expectations from Budget 2026 include:
- Protection of the GST advantage for EVs
- Continued EV incentives under PM E-DRIVE
- Extension of duty exemptions on critical battery inputs
- Policy support for domestic rare-earth magnet production
- Stronger focus on localisation of EV components
- Policy continuity for both EV and ICE segments
- Sustained support for R&D, MSMEs, and supply-chain development
Outlook Ahead of Budget 2026-27
With demand recovering and electrification gaining pace, the auto industry views Budget 2026-27 as an opportunity to reinforce policy stability, GST clarity, and long-term investment confidence. Stakeholders believe that balanced support for EVs and ICE vehicles will be essential to sustaining growth while advancing India’s clean mobility goals.
Source: Moneycontrol