India has strengthened its position as one of the world’s largest automotive markets, supported by rising domestic demand, policy support, localisation and growing integration into global supply chains. In 2025, the country surpassed Japan to become the world’s third-largest automobile market, while the automotive sector, including vehicle and auto-component manufacturing, contributes about 7.1 per cent to GDP.

Passenger vehicle production rose from 3.06 million units in FY2021 to 5.54 million in FY2026, a CAGR of 13 per cent, while sales increased from 2.71 million to 4.64 million units at an 11 per cent CAGR. Utility vehicles have reshaped the passenger vehicle market: their share of total PV sales increased from 39 per cent in FY2021 to 65 per cent in FY2025, as demand shifted towards SUVs and crossovers.

Commercial vehicle production increased from 0.62 million units in FY2021 to 1.17 million units in FY2026, registering a 13 per cent CAGR, while sales grew from 0.57 million to 1.08 million units at a 14 per cent CAGR. Infrastructure development, construction and mining activity, freight movement, e-commerce and logistics supported this recovery. Medium and heavy commercial vehicles also gained ground, with their share of total CV sales rising from 28 per cent in FY2021 to 39 per cent in FY2025.

Exports remain a smaller part of production but continue to expand. Passenger vehicle exports rose at a 17 per cent CAGR from 0.40 million units in FY2021 to 0.77 million in FY2025, while commercial vehicle exports increased at a 12 per cent CAGR from 0.05 million to 0.08 million units. South Africa, Saudi Arabia, Mexico, Japan and the UAE were the largest PV export destinations in FY2025. Saudi Arabia was also the largest market for truck exports, while the UAE accounted for the largest share of bus exports.

Government programmes remain central to electrification and localisation. The Production Linked Incentive Scheme for automobiles and auto components has an outlay of Rs 259.38 billion and supports Advanced Automotive Technology products, including battery electric and hydrogen fuel-cell vehicles. PM E-DRIVE, with an approved Rs 109 billion outlay, supports electric two-wheelers, three-wheelers, buses, ambulances and trucks, charging infrastructure and testing agencies. PM-eBus Sewa targets deployment of 10,000 electric buses through a PPP model, with a total outlay of Rs 576 billion, including Rs 200 billion in Central Government support.

Electric vehicle adoption is also increasing. Four-wheeler EV penetration rose from 1.11 per cent in 2022 to 5.35 per cent in 2026, while the share of battery electric passenger car registrations increased from 1 per cent in 2022 to 4 per cent in 2025. Hybrid registrations rose from 5 per cent to 8 per cent over the same period, while ICE vehicles declined from 94 per cent to 88 per cent.

Demand is being reinforced by improving affordability and financing. Outstanding vehicle loans by Scheduled Commercial Banks rose from Rs 4.0 trillion in FY2022 to Rs 7.4 trillion in FY2026, a 16 per cent CAGR, while per capita Gross National Disposable Income increased from Rs 174.5 thousand to Rs 254.5 thousand over the same period, supporting vehicle ownership and replacement demand.

Automakers are expanding capacity and product portfolios. Mahindra & Mahindra announced Rs 150 billion investment over the next decade for an integrated automobile and tractor facility near Nagpur, while Maruti Suzuki announced Rs 140 billion capital expenditure for FY2027. Tata Motors announced the EUR 3.8 billion acquisition of Iveco Group’s commercial vehicle business and, by June 2026, had secured more than 3,400 electric CV orders.

However, the industry faces challenges from West Asia-related export and supply-chain risks, stricter emission norms, increasing vehicle technology complexity and raw-material volatility. Proposed BS-VII norms, targeted for nationwide implementation by FY2030-31, could increase manufacturing costs by Rs 30,000 to Rs 1,00,000 per vehicle, depending on the segment and technological upgrades required.