India’s automobile sector is set to see a calibrated moderation in FY27 after a strong FY26, with growth likely to be tempered by high base and emerging global risks, according to Deloitte India’s fourth edition of WheelWatch, the auto sector tracker study.
The sector recorded 8–11% growth across segments in FY26, driven by a recovery in underlying demand rather than inventory-led expansion. “What changed during the year was not intent, but confidence, buyers gained clarity on pricing, affordability and ownership economics, which helped unlock deferred decisions,” said Rajat Mahajan, Partner and Automotive Sector Leader, Deloitte India
Policy Tailwinds
Policy support played a key role in reviving demand. A reduction in GST from 28% to 18% on select categories such as small cars, two-wheelers and commercial vehicles boosted retail sales in the second half of FY26. At the same time, repo rate cuts totalling 125 basis points improved financing affordability, while a rural rebound helped narrow the demand gap with urban markets.
However, the outlook for FY27 is more measured. “We expect a calibrated moderation as the high base effect of FY26 could act as a damper for growth,” Mahajan said, adding that geopolitical tensions in West Asia could impact fuel and commodity prices, posing additional risks.
Tale of Two Segments
Segment trends remained mixed. Two-wheeler sales rose 10.7% to 21.7 million units, crossing pre-Covid levels, though the growth was largely cyclical. Scooters continued to gain share, rising to nearly 37% of the mix, reflecting changing consumer preferences.
Passenger vehicle sales grew 7–8% to 4.6 million units, driven primarily by premiumisation, with SUVs and MPVs accounting for about 66% of volumes. However, entry-level demand remained subdued, with car ownership still limited to around 8% of households.
Electric vehicle adoption continued to lag headline growth rates. While two-wheeler EV penetration stood at 6.5% and passenger vehicle EVs at 3.6%, adoption remained constrained by charging infrastructure gaps, higher upfront costs and policy inconsistencies across states.
“Demand visibility remains favourable, supported by sustained infrastructure investments and ongoing urbanisation,” Mahajan said, adding that the sector’s medium-term outlook remains positive despite near-term moderation.