Whalesbook
Affordability Squeeze Amidst Low Penetration
India's automotive market, a significant contributor to the nation's GDP, is poised for a crucial policy moment with the upcoming Union Budget 2026-27. Despite a recent GST reset and festive season demand providing some relief, the industry's recovery remains notably uneven. Premium passenger vehicles continue to attract buyers, yet entry-level cars and two-wheelers face persistent demand challenges. This disparity is exacerbated by increasing vehicle prices, driven by regulatory mandates for safety features and compliance upgrades, which strain household budgets.
The low vehicle penetration rate – just 26 cars per 1,000 people in FY25, far below global benchmarks – highlights a vast untapped market. Experts believe unlocking this potential hinges on reviving mass-market demand. Targeted budget interventions aimed at reducing upfront costs, simplifying financing options, and lowering running expenses could prove vital in rebalancing the entry-level segments and fostering widespread ownership.
Electrification and Supply Chain Focus
Industry stakeholders are advocating for measures to accelerate electric vehicle (EV) adoption, particularly in the two-wheeler segment, and to bolster domestic manufacturing capabilities. Suggestions include extending schemes like FAME and PM E-DRIVE, introducing interest subvention for EV buyers, and rationalizing duties on key EV components such as batteries and semiconductors. Policy support for strong hybrids through concessional GST rates is also on the agenda.
Stimulating Demand and Strengthening Supply Chains
To address the persistent challenges faced by tier-II and tier-III suppliers, calls are mounting for a simplified customs framework, duty exemptions on essential inputs, and enhanced support for auto component clusters. Experts also emphasize the need for a fiscally facilitative approach to the upcoming stricter CAFE Phase III norms, potentially through GST credits or accelerated depreciation, to encourage investments in emissions-reduction technologies and lightweighting. The vehicle scrappage policy is also up for review, with suggestions to increase rebates and introduce GST-linked incentives to boost enrollment and accelerate fleet modernization.
Investment and Capex Clarity
Companies are reassessing investments, particularly in EV and battery-related projects, due to cost considerations and a need for policy clarity. The existing Production Linked Incentive (PLI) scheme for Advanced Chemistry Cell manufacturing faces scrutiny for its strict eligibility criteria. Industry players are requesting relaxations to encourage broader participation, including from small and mid-sized firms, thereby boosting localization of battery manufacturing. Close monitoring of the National Critical Mineral Mission's implementation is also deemed essential to ensure benefits cascade through the value chain and reduce capital expenditure costs.