India’s Passenger Vehicle & Two-Wheeler Sales Set For Modest Growth In 2025-26

According to a recent report by ratings agency ICRA, the passenger vehicle sales in India are forecasted to grow by 4-7% in 2025-26, with most factors influencing demand remaining either neutral or favorable.

In contrast, the two-wheeler segment will likely see a faster growth rate of 6-9% in FY26, supported by strong rural demand.

This follows a significant 11-14% growth in FY25, as per the ICRA report.

The passenger vehicle industry hit a record high of 4.2 million units in FY24.

Although wholesale volumes in FY25 have remained steady, industry growth has been modest at around 2%, as production levels have remained consistent.

ICRA attributes this stability to favorable demand drivers such as disposable income, new model launches, and ownership costs.

The report stated, “Most of the demand drivers for the industry – disposable incomes, new model launches, cost of ownership etc – remain neutral or favourable. Accordingly, even as the base for the industry continues to remain high, Icra estimates the PV industry volumes to grow at a moderate pace of 4-7 per cent in FY2026.”

The two-wheeler industry, however, has shown a strong recovery, growing by about 10% year-on-year in FY25.

Rural demand has rebounded, driven by good monsoon seasons, fueling this growth.

With strong rabi sowing expected to continue, rural demand for two-wheelers is likely to remain strong.

Impact Of Budget & Income Tax On Vehicle Sales

The reduction in income tax exemptions in the Union Budget is likely to boost disposable incomes, further supporting demand for both two-wheelers and passenger vehicles.

ICRA forecasts that two-wheeler sales will continue their healthy growth, expanding by 6-9% in FY26.

Additionally, the domestic commercial vehicle industry will likely experience growth in FY26, bolstered by factors like economic recovery, increased infrastructure spending, and favorable freight availability.

Initiatives such as the scrappage policy and a push toward cleaner vehicles could stimulate replacement demand, particularly in buses.

The report indicates, “Mandatory scrapping of older government vehicles and replacement demand would drive growth in buses, while growth in LCV (trucks) is likely to be lower, impacted by cannibalisation from e3Ws and slowdown in e-commerce among other factors. MHCV (trucks), LCVs and buses are likely to grow by 0-3 per cent, 3-5 per cent and 8-10 per cent respectively in FY2026.”

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