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Informist, Wednesday, Nov. 19, 2025

 

MUMBAI – CareEdge Ratings expects year-on-year volume growth of around 4% in passenger vehicles for the financial year 2025-26 (Apr-Mar), driven by lower goods and services tax. Lower inflation, low finance costs after multiple cuts in the repo rate since February, and the income-tax rebate by the government are also likely to help improve demand, the rating agency said in a press release Wednesday.

 

The sector is expected to get a boost after the government cut GST to 18% from 28% on small cars. However, the overall growth in cars will still be driven by sport utility vehicles as consumers may continue to prefer premium products. The agency expects sport utility vehicle volumes to rise 8-10% in FY26. In the seven months ended October, sport utility vehicle volumes were up over 6% on year. All passenger vehicle volumes grew nearly 4%.

 

"While SUVs remain aspirational and continue to dominate with a 66–68% share of PV sales, tax benefit for small cars could drive a gradual resurgence over the next 12–24 months," CareEdge said.

 

Growth in volumes of electric cars is expected to pick up in FY26 on higher penetration. The agency expects electric car volumes to grow 57% to 175,000 units in the fiscal year. Consumers' interest in cars with lower fuel costs and lower servicing requirements is growing, the agency said. However, the penetration of these vehicles remains modest with insufficient charging stations posing a significant barrier, it added.

 

Sales volumes of hybrid vehicles are expected to rise 34-38% on year in FY26 to 107,000-110,000 units. They have emerged as a convenient, compliance-friendly alternative with lower emissions and better fuel efficiency as compared to vehicles powered by internal combustion engines.

 

The revised Bureau of Energy Efficiency norms under Corporate Average Fuel Efficiency-3 and Corporate Average Fuel Efficiency-4, which will take effect from FY28, are expected to incentivise adoption of technology. Anticipation of an increase in compliance costs may push buyers to advance purchases, leading to a demand boost from as early as FY27, CarEdge Ratings said. Combined with the GST rate cuts, these policies could push the market towards compact cars and hybrids, while sport utility vehicles are expected to dominate in the near term.  End

 

Reported by Akshat Saksena

Edited by Rajeev Pai

 

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