India's passenger vehicle (PV) industry is poised for a moderate growth of 4-7% in the fiscal year 2025-26 (FY26), as per the latest report by ratings agency ICRA. This projection comes after the industry reached a record high of 4.2 million units in FY24. In the current fiscal year-to-date (FY25), wholesale volumes have remained stable, supported by consistent production levels from automobile manufacturers. However, the growth rate has been modest at approximately 2%, attributed to diminishing replacement demand and elevated inventory levels.

ICRA notes that healthy retail sales have contributed to a reduction in dealer inventory holdings over recent months, yet inventory levels continue to be moderately high. The agency forecasts a growth rate of 0-2% for the PV industry in FY25. Key demand drivers—including disposable incomes, new model launches, and cost of ownership—are expected to remain neutral or favorable, supporting the anticipated 4-7% growth in FY26.

In the two-wheeler (2W) segment, ICRA estimates a robust growth of 6-9% in FY26, following an anticipated 11-14% increase in FY25. The current fiscal year has witnessed a strong year-on-year growth of about 10% in 2W volumes, as the industry continues to recover from the downturn experienced during FY2020-FY2022. Improved rural demand, bolstered by favorable monsoon conditions and healthy rabi sowing, has been a significant contributor to this resurgence.

The domestic commercial vehicle (CV) industry is projected to experience marginal growth in FY26. Factors such as enhanced economic activities, sustained government investment in infrastructure, ample freight availability, and policies like the vehicle scrappage initiative are expected to drive replacement demand. Specifically, mandatory scrapping of older government vehicles is anticipated to boost demand in the bus segment. However, growth in light commercial vehicles (LCVs) may be tempered due to competition from electric three-wheelers and a slowdown in the e-commerce sector. ICRA projects growth rates of 0-3% for medium and heavy commercial vehicles (M&HCV trucks), 3-5% for LCVs, and 8-10% for buses in FY26.