India’s Passenger Vehicle (PV) industry is poised to scale a fresh peak this fiscal, with wholesale volumes expected to rise 5-7% to nearly 5.9 million units, driven by the lingering benefits of last year’s GST reduction and sustained appetite for utility vehicles, according to Crisil Ratings.

The ratings agency said the sector enters FY27 with strong domestic demand visibility, improving affordability in the small car segment and an expanding sport utility vehicle (SUV) portfolio across price bands. Domestic sales, which account for nearly 86% of total PV output, are expected to remain the primary growth engine even as exports face geopolitical headwinds.

Earlier, ICRA had predicted the PV market to grow by 4–6% during this financial year.

SUV juggernaut gathers pace

Crisil expects utility vehicles to clock 7-9% growth this fiscal, outpacing the broader market as Indian buyers continue shifting towards larger, feature-rich vehicles. The segment’s share in the industry mix is projected to rise further to 69% in FY27 from 67% last fiscal.

At the same time, the small car category — accounting for roughly 30% of domestic volumes — is expected to recover modestly with 2-4% growth, aided by lower acquisition costs and stable interest rates.

The report noted that the GST reduction announced in September 2025 materially altered demand trends. Passenger vehicle volumes had declined 1.4% in the first half of FY26, but rebounded sharply with 16.7% growth in the second half, helping the industry close the year with 7.9% domestic growth.

West Asia conflict clouds export outlook

While demand fundamentals remain healthy, Crisil flagged rising risks from the prolonged West Asia conflict. Export growth, after surging 17.5% to 0.9 million units in FY26, is expected to slow to 6-8% this fiscal as higher freight costs and weaker regional demand weigh on shipments.

West Asia contributes nearly a quarter of India’s passenger vehicle exports.

Automakers have already implemented calibrated price hikes of 1-3% this fiscal to offset higher costs of steel, aluminium, copper and platinum-group metals. However, companies have absorbed part of the inflationary burden to protect volume momentum.

Regulatory tightening to raise investment burden

The industry is also preparing for a tougher regulatory cycle with CAFE-III fuel efficiency norms set to kick in from April 2027, alongside proposed Bharat Stage VII emission standards and higher ethanol blending requirements.

Crisil said these measures will significantly raise compliance costs and capital expenditure needs for automakers over the medium term, even as electric vehicles — currently accounting for about 5% of PV volumes — stand to benefit from the policy push.

Despite margin pressure, operating profitability is expected to remain relatively healthy at 9.7-10% this fiscal, compared with around 10.5% last year, supported by strong balance sheets and low leverage across the industry.