Passenger vehicle sales likely to see modest growth of 1-4% in FY26: ICRA

ICRA expects India's passenger vehicle wholesale volumes to grow by 1-4% in FY26, limited by high inventory and a high base. However, possible GST rate cut is likely to provide some support to volumes

Wholesale volumes in India’s passenger vehicle (PV) segment are expected to register a modest growth of 1-4 per cent in the financial year 2025–26 (FY26), according to credit rating agency ICRA. The forecast reflects the impact of elevated inventory levels and a high base effect, which could restrict expansion.

 

The industry has already seen a contraction of 1.1 per cent in the first four months of the financial year, the agency said in its latest report. However, the launch of new models and the possibility of a goods and services tax (GST) rate cut may provide some cushion to demand during the remainder of the year.

 

July car sales volume

According to data from the Federation of Automobile Dealers Association (FADA), industry inventory levels in July 2025 rose slightly to 55 days. Original equipment manufacturers (OEMs) increased dispatches in anticipation of the upcoming festive season.

 

Wholesale volumes for July stood at 340,000 units, marking an 8.9 per cent sequential increase, but remaining largely flat on a year-on-year (Y-o-Y) basis. Retail sales improved by 10.4 per cent month-on-month, though they fell 0.8 per cent compared to the previous year.

 

SUVs continue to dominate

The sport utility vehicle (SUV) segment continues to lead demand, contributing 65-66 per cent of total PV sales in July. ICRA expects utility vehicles (UVs) to remain the primary growth driver in the near term, supported by consumers’ sustained preference for larger vehicles.

 

Passenger vehicle exports show recovery

Meanwhile, export volumes posted a 9 per cent year-on-year increase in July 2025, albeit on a low base.

 

Maruti Suzuki India maintained its lead as the top exporter, followed by Hyundai Motors India.

GST revamp may boost auto sales

The government’s recently announced plans to shift to a simplified two-slab GST structure (5 per cent and 18 per cent, with a 40 per cent slab for select goods) could help the domestic auto market.

 

Under the proposed revisions, small cars and two-wheelers, which are currently taxed at 28-30 per cent, may move into the 18 per cent slab. This could revive demand for small car sales. SUVs and mid-size cars, however, are expected to remain under the higher 40 per cent slab.

Maruti Suzuki India