As the Union Budget 2026-27 draws near, India's automotive sector, a flagship industry of the nation, finds itself at a critical juncture. While auto original equipment manufacturers (OEMs) and suppliers have achieved significant milestones in exports, technological advancements, and capacity expansion in recent years, the operating environment has become increasingly volatile. Global supply chains remain unpredictable, tariffs and trade barriers continue to shift, and the cost of capital remains high. What the industry urgently requires is not a radical transformation but a budget that provides stability, enhances competitiveness, and paves the way for the next growth phase.
Global Competitiveness and Domestic Challenges
India's automotive sector has demonstrated remarkable global competitiveness, with overall exports surging by 24% year-on-year. This impressive growth highlights the strength of domestic manufacturing and its expanding relevance on the world stage. Leading OEMs have substantially increased their production capacities, positioning India as a reliable manufacturing hub for emerging markets. Already the world's third-largest passenger vehicle market, a supportive budget could accelerate India's journey toward becoming a global automotive manufacturing powerhouse.
However, the domestic market presents a mixed picture. While it has rebounded strongly across most segments, recovery in motorcycles and entry-level cars remains sluggish. This trend reflects ongoing affordability pressures among middle- and lower-income households. The most effective demand stimulus would come from measures that boost disposable income through calibrated tax relief, rationalized deductions, or reduced credit costs. Rather than product-specific subsidies, households today need the confidence to make long-deferred purchases. Even modest improvements in take-home pay could drive significant volume growth in mass-market segments.
Infrastructure as a Growth Multiplier
Infrastructure development represents a key area where the budget can create a powerful multiplier effect. Over the past decade, India has made substantial progress in road construction, logistics corridors, rural connectivity, and multimodal transport networks. These improvements directly influence consumer behavior and lower operating costs for the industry. Sustained capital investment in transport infrastructure will generate demand over the medium term. Rural infrastructure, in particular, is crucial for reviving two-wheeler and entry-level passenger vehicle segments. Despite fiscal consolidation pressures, sharp cuts to capital expenditure must be avoided, as they would prove counterproductive to long-term growth.
Electrification: A Clear Roadmap Needed
The industry seeks a clear, steady roadmap from the budget that reduces uncertainty rather than introducing new variables. Four priorities stand out for advancing electrification:
- Long-term visibility on incentive frameworks, including schemes for advanced manufacturing, battery technology, and charging infrastructure.
- Revisiting high GST slabs, especially on motorcycles above certain capacities and luxury vehicles, which distort affordability. GST rationalization should be viewed as an enabler of volume growth and compliance, not a revenue loss. Targeted incentives for entry-level electric vehicles (EVs) could also offset pricing pressures from earlier GST reforms that made petrol cars cheaper.
- Targeted support for high-impact fleet segments such as buses, e-commerce logistics, and ride-hailing services, where electrification delivers disproportionate economic and environmental benefits.
- Greater investment in public and semi-public charging points, particularly in dense urban centers and freight corridors, with a focus on interoperability and smart-charging standards.
Building Domestic Value Chains
Over the next decade, India must focus on competitiveness not just in assembling EVs at scale but in owning more of the value chain. This requires strengthening domestic manufacturing of batteries, motors, power electronics, semiconductors, and embedded software. The budget can accelerate this transition through clear eligibility norms, calibrated incentives for high-value components, and robust research and development support. Reducing import dependence is equally critical. India currently relies heavily on imported lithium, cobalt, nickel, graphite, and rare earth magnets, which are essential for EVs and power electronics. A coherent policy on domestic exploration, strategic overseas partnerships, and end-of-life battery recycling will help build a strong foundation and secure India's position across the value chain.
Supporting MSMEs: The Industry's Backbone
The backbone of India's automotive sector is its extensive network of tier-2 and tier-3 suppliers, predominantly comprised of micro, small, and medium enterprises (MSMEs). These enterprises continue to face working-capital shortages, delayed payments, and fluctuating order loads. Addressing these constraints should be a key budget priority. Expanding credit guarantee coverage, streamlining GST refunds for inverted duty structures, and mandating time-bound invoice settlement through digital platforms will ease liquidity pressures. Incentives for shopfloor digitalization and quality enhancement technologies can further strengthen MSMEs' reliability and integration into global supply chains.
In summary, the industry needs a budget that builds on the progress made so far in infrastructure and electric mobility, promotes localization of high-value components, and boosts consumer confidence. In an uncertain environment, a budget that provides clarity, continuity, and stability will give the industry the confidence to invest and accelerate its growth trajectory.
