Chennai: India's passenger vehicle (PV) industry is projected to achieve a record 5.9 million units in domestic sales during the current fiscal year, marking a growth of 5-7%. This optimistic outlook is driven by last year's GST reduction and sustained demand for utility vehicles, according to CRISIL Ratings.
However, the sector faces headwinds from rising commodity prices, geopolitical tensions in West Asia, and stricter emission and fuel-efficiency norms, which are expected to escalate cost and investment pressures on automakers.
CRISIL Ratings, which analyzed companies representing nearly 94% of wholesale PV volumes, highlighted that the GST reduction in September 2025 significantly revived demand. Domestic PV sales surged 16.7% in the second half of FY26, reversing a 1.4% decline in the first half and enabling the industry to close the year with 7.9% growth.
Domestic sales constitute approximately 86% of total output, with exports accounting for the remainder.
GST tailwind to moderate
"While the GST tailwind will continue in fiscal 2027, its intensity will moderate gradually," said Anuj Sethi, Senior Director at Crisil Ratings. He noted that the small car segment, contributing around 30% of domestic volumes, is expected to grow 2-4% on improved affordability and renewed first-time buyer demand amid a stable interest-rate environment. Utility vehicles, which comprised 67% of PV sales last fiscal, are anticipated to account for 69% in FY27, driven by strong consumer preference and a wider range of models.
Impact of West Asia conflict
CRISIL warned that the West Asia conflict could adversely affect the sector through higher fuel, commodity, and freight costs. Export growth is expected to decelerate to 6-8% this fiscal after rising 17.5% to 0.9 million units in FY26. West Asia accounts for nearly 25% of India's PV exports.
"The West Asia conflict has sharply increased commodity and freight costs," said Poonam Upadhyay, Director at Crisil Ratings. She noted that automakers have implemented calibrated price hikes of 1-3% this fiscal, passing on only part of the increase to protect demand momentum.
Regulatory challenges ahead
The sector is also preparing for stricter regulations, including CAFE-III norms from April 2027, Bharat Stage VII emission standards, and higher ethanol blending targets. These are expected to increase compliance and investment costs.
Electric vehicles, which currently account for around 5% of PV sales, are likely to benefit from the regulatory push, though charging infrastructure remains critical for faster adoption.
