India’s automotive sector has become a key engine of the country’s economic growth and industrial progress. It not only employs millions but also strengthens India’s global presence in manufacturing, exports, and innovation. Over the past decades, the sector has grown at an exceptional pace. While it initially served only domestic demand, India is now the third-largest automobile market in the world and is emerging as a significant export hub.
With the GST 2.0 reforms, a new phase of transformation is underway, promising further growth for the automotive sector. Let us deep dive into it.
Current State of India’s Auto Industry
India’s automotive industry has today become a key pillar of the country’s economic strength. In 1992-93, this sector contributed only 2.77% to the GDP, whereas today its share has increased to 7.1%. This growth reflects how rapidly the sector has expanded over the past three decades.
Currently, India is the third-largest automobile market in the world, with total production reaching 31.03 million units in FY25. The sector not only meets domestic demand but also emerges as a significant export hub at the global level. Additionally, India’s auto industry contributes 49% to the country’s manufacturing GDP. Most importantly, India has evolved from being an economy serving only domestic demand to becoming a major export centre as well.
In terms of foreign investment, the sector is also in a strong position. From April 2000 to December 2024, a total of Rs 2,45,771 crore ($37.52 billion) in FDI has been invested in this sector.
Segments of India’s Auto Industry
India’s auto industry consists of four main segments, each with its own characteristics:
Two-Wheelers: It is the largest segment, accounting for 76.57% of the total market. In FY25, 1.96 crore units were sold in this segment, showing a 9.1% growth compared to FY24. Hero MotoCorp leads this segment with a 29.02% market share, followed by Honda at 25.37% and TVS Motors at 17.13%.
Passenger Vehicles: The second-largest segment accounts for 16.80% of the market. In FY25, 43 lakh units were sold. Maruti Suzuki led this segment, selling 1,16,411 units in December 2024.
Three-Wheelers: Representing 2.90% of the market, this segment recorded total sales of 12.2 lakh units during FY25. Notably, electric three-wheelers performed exceptionally well, with 6,99,073 units sold, accounting for 57% of total sales.
Commercial Vehicles: The smallest segment, it accounts for 3.74% of the market. In FY25, 10,08,623 units were sold. Tata Motors leads this segment with a 34.43% market share in CY24.
Growth Drivers of India’s Auto Industry
India’s auto industry growth is driven by several strong factors:
Electric Vehicle Revolution: In FY25, more than 20 lakh electric vehicles (EVs) were sold in India. According to the India Energy Storage Alliance, the EV market is expected to grow at a CAGR of 36% by 2026. India is the world’s largest manufacturer of electric two-wheelers (E2W) and three-wheelers (E3W).
Rising Income and Young Population: Growth in middle-class income and the increasing demand from a young population are strong growth drivers for the sector. Improved availability of loans and financing options is also boosting purchases.
Policy Support: The Government of India has set ambitious targets under the Electric Mobility Promotion Scheme 2024 to promote EVs. The plan aims to support a total of 3,72,215 electric vehicles, including 3,33,387 electric two-wheelers (E2W) and 38,828 electric three-wheelers (E3W), of which 13,590 are rickshaws and e-carts, and 25,238 are L5 category E3Ws.
Localisation Strategy: Post-COVID-19 supply chain disruptions have prompted Indian automakers to reduce import dependency and increase localisation.
India’s Auto Industry Exports
India’s automobile exports have witnessed remarkable changes in recent years, reflecting the sector’s strength and growth potential. According to SIAM (Society of Indian Automobile Manufacturers), India’s total vehicle exports increased from 45 lakh units in 2023–24 to 52.63 lakh units in 2024–25.
Passenger vehicle exports rose from 6,72,000 to 7,70,000 units, while commercial vehicles also showed improvement, increasing from 65,818 to 80,986 units. The largest contribution came from two-wheelers, whose exports grew from 3.46 million to approximately 4.2 million units.
This growth particularly reflects the strong demand for Indian two-wheelers in emerging markets such as Africa, Latin America, and Southeast Asia. Although three-wheeler exports had declined earlier, they again exceeded 3,00,000 units in 2024–25.
Challenges in India’s Auto Industry
India’s auto industry faces several challenges:
Supply Chain Instability: COVID-19 pandemic, semiconductor shortages, and geopolitical tensions have impacted production capacity. Companies are now focusing on localisation to reduce import dependence and maintain cost control.
Infrastructure and Logistics Limitations: Although India has major auto export ports such as Chennai, Mundra, and Ennore, port congestion, high shipping costs, and limited Ro-Ro (Roll-on/Roll-off) facilities still affect export speed.
Regulations and Complex Customs Procedures: Export processes often face clearance delays and administrative complexities, which impact India’s ‘Ease of Doing Business’ ranking.
Rising EV Demand: Despite increasing demand, inadequate battery infrastructure, safety standards, and EV certification requirements are hindering the sector’s expansion.
However, these challenges also present opportunities for India. Investments in Multimodal Logistics Parks (MMLPs), digitised customs systems, and local EV manufacturing can help India strengthen its position in the global auto supply chain.
Government Initiatives and Support
PM E-DRIVE Scheme: The central government launched this scheme with a budget of $1.30 billion (Rs 10,900 crore). Effective from 1 October 2024 to 31 March 2026, it aims to promote the adoption of electric vehicles and establish charging infrastructure.
FAME Scheme: The FAME-III scheme was launched with a budget of Rs 10,900 crore ($1.29 billion). Running from April 2024 to March 2026, it aims to promote electric mobility and reduce dependence on fossil fuels.
PLI Scheme: The Production-Linked Incentive (PLI) scheme received support of Rs 2,818.9 crore ($325.6 million) in FY26. Its tenure was extended by one year in January 2024 and will now continue until 31 March 2028.
Other Key Policies: Initiatives such as the Battery Waste Management Rules 2022, Ethanol Blending Policy, mandatory flex-fuel engines, and incentives under the Clean Tech scheme, totalling $3.5 billion by 2026, are also boosting the automotive industry.
GST 2.0: Accelerating the Industry
GST 2.0 was implemented during the 56th GST Council meeting on 22 September 2025. It has had a significant positive impact on the automotive sector. Under this, GST on small cars is now 18%, reduced from the earlier 28% plus cess. This change is highly beneficial for the average consumer. However, luxury cars and SUVs now attract a flat GST rate of 40%.
Two-wheelers have also seen mixed changes. Motorcycles up to 350cc have a reduced GST of 18% from 28%, while motorcycles above 350cc now have GST increased from 28% to 40%. Additionally, GST on tractors has been reduced from 12% to just 5%.
Future Outlook
The future of India’s automotive industry looks extremely bright. By 2026, the sector is expected to reach $300 billion. In FY26, the passenger vehicle industry is projected to achieve a record volume of 50 lakh units, combining domestic and export sales.
Additionally, India is moving towards global leadership in shared mobility by 2030, creating new opportunities for electric and autonomous vehicles. With a focus on reducing environmental emissions, India is rapidly advancing to become the world’s largest electric vehicle (EV) market, potentially generating investment opportunities exceeding $200 billion by FY30.
*The companies mentioned in the article are for information purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
