New Delhi, Feb 28 : Passenger vehicle sales in India are expected to clock a 4-7 per cent growth in 2025-26, with most demand drivers remaining neutral or favourable, according to a new report.

The sales of two-wheelers are expected to grow at a faster pace of 6-9 per cent in FY26 on the back of a strong rural demand, following an estimated 11-14 per cent in FY 25, stated the report by ratings agency ICRA.

Passenger vehicle industry volumes reached an all-time high of 4.2 million units in FY24. In year-to-date (YTD) FY25, wholesale volumes remained stable led by steady production by automobile manufacturers but the industry volume growth has been modest at about 2 per cent, according to the report.

"Most of the demand drivers for the industry -- disposable incomes, new model launches, cost of ownership etc -- remain neutral or favourable. Accordingly, even as the base for the industry continues to remain high, Icra estimates the PV industry volumes to grow at a moderate pace of 4-7 per cent in FY2026," the ratings agency said.

In the two-wheeler (2W) industry, Icra said volumes witnessed strong growth in the current fiscal at about 10 per cent YoY growth in YTD FY2025, with the industry continuing to recover from lower levels during FY2020-FY2022.

The industry prospects over the past few months have remained supported by improved rural demand after a good monsoon. Rural demand for the industry is expected to remain healthy, with strong rabi sowing till date, the report observes.

A reduction in income-tax outgo due to exemptions in the Union Budget will lead to an increase in disposable income and support demand. ICRA estimates the two-wheeler industry volumes to grow at a healthy pace of 6-9 per cent in FY2026, following an estimated 11-14 per cent in FY2025.

The report also expects domestic commercial vehicle (CV) industry to register a growth in FY26. Factors like improvement in economic activities, continued budgetary support towards infrastructure spend, healthy freight availability further supporting freight rates, and regulations such as scrappage policy and push towards cleaner vehicles could drive replacement demand, ICRA said.

"Mandatory scrapping of older government vehicles and replacement demand would drive growth in buses, while growth in LCV (trucks) is expected to be lower, impacted by cannibalisation from e3Ws and slowdown in e-commerce among other factors. M&HCV (trucks), LCVs and buses are estimated to grow by 0-3 per cent, 3-5 per cent and 8-10 per cent respectively in FY2026," the report added.

/IANS