GST 2.0 lifts auto retail momentum: Vehicle sales rise 7.7% in 2025 as rural demand, EVs gain ground
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India’s automobile retail market wrapped up calendar year 2025 on a firm footing, overcoming a sluggish start to register broad-based growth across most segments, according to the Federation of Automobile Dealers Associations (FADA).
Data released by the auto retail body showed that total vehicle retail sales rose 7.71% year-on-year to 28.16 million units, with the industry witnessing a sharp turnaround in the second half of the year following policy-led stimulus.
FADA described 2025 as a “two-half year”, with January to August marked by cautious consumer spending, selective financier approvals and uneven demand conversion, despite supportive macro cues such as income tax relief and interest rate easing.
"The turning point came from September onwards, when the landmark GST 2.0 rate rationalisation—including meaningful reductions for mass segments like small cars, two-wheelers (up to 350cc), three-wheelers and key commercial categories—improved affordability and lifted sentiment, leading to a clear upshift through Sept–Dec,” noted FADA President C.S Vigneshwar.
Two-wheelers, PVs and rural markets lift volumes
Two-wheelers continued to dominate volumes, growing 7.24% to 20.29 million units, while passenger vehicle (PV) retail expanded 9.7% to 4.47 million units. Commercial vehicles posted a 6.71% increase, tractors grew a robust 11.52%, and three-wheelers rose 7.21%.
January 2026
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Construction equipment was the lone laggard, declining 6.67% year-on-year.
Rural markets emerged as a key growth driver, particularly in passenger vehicles, where rural retail rose 12.31% compared with 8.08% growth in urban centres—underscoring the widening reach of personal mobility beyond metropolitan cities. Overall, urban retail grew 8.20%, while rural markets expanded 7.31%, reflecting balanced regional participation.
EV sales soar high
The year also reinforced India’s evolving mobility mix. Electric vehicles (EVs) gained traction across categories, with battery-powered models accounting for over 60% of three-wheeler retail, 6.31% of two-wheeler sales, and nearly 4% of PV volumes. CNG penetration strengthened as well, reaching 21.3% in PVs and 11.81% in CVs.
December capped the year on a strong note, with auto retail rising 14.63% year-on-year, aided by year-end offers and pre-buying ahead of January price hikes.
Business outlook
Looking ahead, FADA said dealer sentiment remains upbeat, with over 70% expecting growth in January 2026 and nearly 75% optimistic about the next quarter, supported by festive demand, the marriage season, improving rural cash flows and softer borrowing conditions.
“Rural tailwinds look constructive as official updates show rabi sowing is tracking ahead of last year, and the IMD’s forecast of a colder January is expected to be favourable for key winter crops—both of which can improve cash flows and confidence,” said FADA President.
He added, “On the macro side, the RBI’s repo rate at 5.25% provides incremental comfort on borrowing costs, while the market is also discussing a consumption-supportive, tax-relief-oriented Union Budget which, if delivered, can further lift discretionary demand.”