Auto Sector in Fast Lane Post-GST Rate Cuts

Continued policy measures and supportive financing environment will be critical for the auto industry to navigate changing consumer preferences, technological advancements and focus on sustainability

- By SRIKUMAR KRISHNAMURTHY

Fiscal year 2026 for the Indian automotive industry is unfolding as a tale of two halves, with a sluggish first half amidst weak demand sentiments followed by a strong second half recovery led by policy support and healthy rural demand. Specifically, the 42-day festive season (from 22 September 2025 to 2 November 2025) was vibrant, aided by auspicious buying sentiments, pent-up demand, supportive rural output, conducive financing environment, and the well-timed GST reforms which made the festivities more colourful for the auto sector. The rate cuts and the drop in vehicle prices have unlocked the deferred demand, notably among first-time buyers and those in Tier-2 and Tier-3 cities. The trend was seen continuing after the festive period as well with strong retail sales noted in November and December 2025 reflecting a resilient retail demand amidst continued promotional offers by dealers.

UVs are the Preferred Choice

In the passenger vehicle (PV) segment, multiple trends have been emerging in recent years, the notable ones being vehicle premiumisation and shift in powertrain preferences. Utility vehicles (UV) is now the preferred choice, driven by changing consumer preferences and a slew of new model launches. Consequently, UVs accounted for around 65 per cent of total car production, up from 50 per cent in FY2023, while entry-level car demand was subdued. The penetration of alternative fuels, specifically compressed natural gas (CNG) and electric vehicles, is steadily rising, aided by the introduction of new models and an improving charging/fuelling network.