As the Union Budget 2026-27 comes into focus, India’s automotive industry finds itself at a decisive crossroads. The sector has delivered steady gains in exports, technology adoption and capacity expansion over the past few years. But it is also navigating a tougher global landscape marked by fragile supply chains, shifting trade policies, rising tariffs and high borrowing costs. Against this backdrop, the industry is not asking for sweeping changes—what it needs most is stability and clear policy signals to unlock its next growth phase.
Exports highlight India’s growing global strength
India’s auto sector has quietly strengthened its global standing. Automotive exports have grown 24% year-on-year, underlining the competitiveness of domestic manufacturing. Several leading OEMs have expanded capacity, positioning India as a reliable production base for emerging markets. Already the world’s third-largest passenger vehicle market, India has the potential to move closer to becoming a global automotive manufacturing hub if the Budget reinforces a predictable and supportive policy environment.
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Domestic demand improves, affordability remains key
At home, vehicle sales have recovered across most segments, but growth in motorcycles and entry-level cars continues to lag. The slowdown reflects affordability pressures faced by middle- and lower-income households. Industry watchers believe the most effective demand boost would come from measures that increase disposable income—such as calibrated tax relief, rationalised deductions or lower borrowing costs. More than targeted subsidies, consumers need confidence to make purchases they have postponed. Even modest gains in take-home pay can translate into meaningful volume growth in mass-market segments.
Infrastructure spending delivers a multiplier effect
Infrastructure remains one of the strongest levers for sustained auto sector growth. Over the past decade, investments in highways, logistics corridors, rural roads and multimodal transport have reduced operating costs and shaped buying behaviour. Continued capital expenditure in transport infrastructure can generate steady demand over the medium term. Rural infrastructure, in particular, is critical for reviving two-wheeler and entry-level passenger vehicle sales. Despite fiscal consolidation pressures, sharp cuts in capital spending could undermine this momentum.
EV transition needs clarity and continuity
India’s electric vehicle transition has reached a phase where policy stability matters more than fresh incentives. Automakers, fleet operators and suppliers are making long-term bets on localisation, new products and charging infrastructure. What they seek from Budget 2026-27 is a clear, steady roadmap that reduces uncertainty rather than introducing new variables. Predictable policies will be key to sustaining investment as the EV ecosystem matures.
Owning more of the EV value chain
Over the next decade, competitiveness will depend on how much of the EV value chain India controls. Beyond assembling vehicles, the focus must shift to batteries, motors, power electronics, semiconductors and embedded software. The Budget can support this transition through clear eligibility norms, calibrated incentives for high-value components and stronger R&D backing. Reducing import dependence is equally important, especially for lithium, cobalt, nickel, graphite and rare earth magnets. A coherent approach combining domestic exploration, overseas partnerships and battery recycling can help secure long-term supply chains.
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MSMEs need targeted support
Tier-2 and tier-3 suppliers, largely MSMEs, form the backbone of India’s auto ecosystem. Many continue to grapple with working capital shortages, delayed payments and fluctuating order volumes. Expanding credit guarantee schemes, faster GST refunds for inverted duty structures and time-bound digital invoice settlements can ease liquidity stress. Support for shopfloor digitalisation and quality upgrades can further strengthen MSMEs and improve their integration into global supply chains.
Stability is the industry’s core ask
As expectations build around Union Budget 2026-27, the auto industry’s priorities are clear. Build on progress in infrastructure and electric mobility, encourage localisation of high-value components and restore consumer confidence. In an uncertain global environment, a Budget that offers clarity, continuity and stability will give the industry the confidence to invest, scale up and accelerate its growth trajectory.
Author: Axpert Media Finance Desk
