What Lies Ahead for India's Auto Industry in 2026? Insights and Predictions

A Promising Outlook for India's Automobile Sector

New Delhi: As India’s automobile sector gears up for 2026, it is poised for a robust sales growth of 6-8%. This optimistic forecast is bolstered by supportive policies such as GST adjustments, relaxed monetary policies, and tax relief, which are expected to enhance affordability and maintain consumer interest across various vehicle categories.

The growth trajectory is not merely a result of cyclical recovery; passenger vehicle sales surged in 2025 following a sluggish start, driven by increased urban demand, stable rural incomes, and better financing options.

Demand for SUVs remains strong, while CNG and electric vehicles are gradually gaining popularity, indicating a steady evolution in the powertrain landscape rather than a sudden shift.

Nevertheless, 2026 is anticipated to be a preparatory phase for stricter regulations.

The industry is bracing for rising compliance costs as it prepares for CAFE norms set to take effect in 2027 and upcoming emission standards, which may squeeze profit margins and affect pricing strategies. New safety regulations, including ABS and CBS for two-wheelers, are already leading to higher entry-level prices, potentially hindering growth in price-sensitive markets.

Supply chain challenges persist as a structural issue. Although localization has improved, global uncertainties, tariffs, and currency fluctuations continue to pose risks, especially for high-end and component-heavy vehicles. Maintaining supply chain efficiency and pricing discipline among OEMs will be crucial for sustaining dealer confidence into early 2026.

Simultaneously, investment trends are evolving. Automakers are increasingly directing funds toward electrification, charging infrastructure, and platform enhancements while also scaling up traditional powertrains to meet immediate demand. This dual approach reflects a market that is gradually transitioning rather than making abrupt changes.

In summary, the outlook for the auto sector in 2026 is cautiously optimistic: growth is expected to continue, supported by favorable policies and resilient consumer spending, yet increasingly influenced by regulatory preparedness, cost challenges, and the speed at which consumers adapt to rising prices and new technologies.

Maruti Suzuki's MD and CEO, Hisashi Takeuchi, expressed confidence in the industry's growth potential, projecting GST benefits to fully materialize in 2026, which could drive annual growth to 7-8% and boost employment opportunities in the country. He emphasized the company's commitment to expanding capacity to meet both domestic and export demands.

Takeuchi highlighted 2025 as a landmark year for Maruti Suzuki and the broader Indian auto industry, noting that the sector accelerated into a growth phase thanks to progressive GST reforms.

He stated, "This significant reform revitalized the economy, positioning the passenger vehicle sector to achieve record calendar year sales of 4.5 million units, reflecting a 5% increase from the previous year."

CS Vigneshwar, president of the Federation of Automobile Dealers Associations (FADA), expressed optimism about closing 2025 with double-digit growth in both two-wheeler and passenger vehicle segments, attributing this to stable rural incomes and the ongoing wedding season, which is expected to sustain positive momentum into early 2026.

According to the latest Dealer Satisfaction Index from December 2025, 74% of dealers anticipate good to excellent growth in the upcoming three months (December-February).

Vigneshwar noted that if OEMs can ensure timely stock availability and avoid sudden price hikes, the current growth momentum should continue into the first half of 2026.

However, he cautioned that significant price increases by OEMs starting in January could dampen demand in the short term.

Additionally, the mandatory implementation of CBS/ABS for all two-wheeler categories may raise entry-level prices by at least ₹5,000, potentially affecting consumer sentiment.

Shailesh Chandra, president of the Society of Indian Automobile Manufacturers (SIAM), indicated that all industry segments are expected to finish the calendar year with growth compared to the previous year. He also anticipates strong double-digit growth in export volumes across all segments, reflecting increasing acceptance of Indian-made vehicles.

Looking forward, with a supportive policy framework and an improving global outlook, the industry remains hopeful for sustained growth in 2026, aligning with India's vision for a developed nation.

The Automotive Component Manufacturers Association of India (ACMA) also expects the growth trend to persist in the coming year, driven by domestic demand and localization, despite ongoing global uncertainties and supply chain risks.

Chandra, who also serves as MD and CEO of Tata Motors Passenger Vehicles, noted that GST rationalization and favorable policies, including repo rate cuts and tax benefits, will enhance accessibility and stimulate demand.

He stated, "We are well-positioned to lead in high-growth segments, including the ongoing surge in SUV demand and the increasing adoption of CNG and EV technologies. Our diverse portfolio across these categories places us at the forefront of this market transition."

Overall, 2026 presents significant growth opportunities, supported by brand strength, a robust launch calendar, regulatory advantages, and leadership in future-ready powertrains.

Regarding the upcoming CAFE III norms, Chandra expressed optimism that the government will articulate them in a way that encourages a shift toward sustainable technologies.

Nalinikanth Gollagunta, CEO of Mahindra & Mahindra Auto Division, reaffirmed the company's commitment to operational excellence and innovation in design and products for the upcoming year.

He added, "On the electric front, we aim to increase our operational capacity to 8,000 eSUVs per month and enhance the public charging infrastructure."

Gollagunta believes that 2026 will be a defining year for Mahindra, solidifying its leadership and establishing India as a global player in the SUV market.

Som Kapoor, Partner and Future of Mobility Leader at EY-Parthenon, projected a growth rate of 5-8% for the industry in 2026.

He noted that upcoming regulations, such as BS7 and CAFE 2027, are currently under discussion, and 2026 will reveal long-term transition strategies for passenger vehicle OEMs.

Kunal Behl, VP of Sales and Marketing at Honda Cars India, stated that sustained SUV demand and gradual electrification will further enhance India's status as a key global automotive market.

He expressed confidence in continued demand and steady growth in 2026, supported by a strengthening economy, easier financing access, and favorable government policies.

Stephane Deblaise, CEO of Renault Group India, echoed similar sentiments, stating that 2026 will be crucial for the company with the return of the iconic Renault Duster.

He remarked, "We are positioned advantageously, with the government's landmark GST 2.0 reforms and progressive policies fostering a dynamic environment that will strongly support our ambitions in India."

A spokesperson from Toyota Kirloskar Motor emphasized the company's unwavering commitment to decarbonization through a multipath approach, offering a wide range of technologies tailored to diverse customer needs.

In the luxury car segment, Santosh Iyer, MD and CEO of Mercedes-Benz, noted that the impact of GST 2.0 has been significant for the overall economy, and recent GDP growth data reinforces confidence in this growth trajectory.

However, he cautioned that the positive effects of GST 2.0 may diminish in the mid- to long-term due to rising prices from deteriorating foreign exchange rates.

The luxury car market leader maintains a positive outlook for 2026, with customers anticipating new product launches in both ICE and BEV segments.

Hardeep Singh Brar, president and CEO of BMW Group India, stated that after closing 2025 with high double-digit growth, expectations for 2026 are understandably high.

He emphasized the need for the luxury car industry to focus on expanding the market size, which has remained stagnant for too long.

Brar remarked that the Indian economy is resilient, driven by consumption, and the mindset towards meaningful luxury is evolving.

He acknowledged that some challenges from this year may persist into early 2026, including ongoing rupee depreciation, which pressures costs, as well as global tariffs and supply chain issues affecting critical component availability.

Balbir Singh Dhillon, Head of Audi India, reflected on 2025, noting that while the first half presented industry-wide challenges, the resilience of the luxury market and strong GST-driven demand helped the segment recover in the latter months.