New Delhi, Nov 19 : India's passenger vehicle industry volumes are expected to grow around 4 per cent in FY26, driven by GST rationalisation, easing inflation and supportive fiscal measures, a report said on Wednesday.

SUVs are expected to continue dominating the market and grow 8â??10 per cent, according to the report from CareEdge Ratings.

The rating agency said the GST cut on small cars from 28 per cent to 18 per cent should revive entryâ??level demand, and the removal of cess on SUVs can boost their demand.

The hybrid volumes are expected to jump 34-38 per cent to about 1.07â??1.10 lakh units in FY26, up from 80,406 units registered in FY25.

EV penetration is expected to remain modest at 3-4 per cent, the report said, forecasting electric car volumes in the PV segment at around 1.75 lakh units for FY26. EV sales grew by 83 per cent in FY24 and 11 per cent in FY25, reaching 1.11 lakh units in FY25.

Madhusudhan Goswami, Assistant Director, CareEdge Ratings, said that after the GST rate cut, robust growth in retail sales was observed across rural and urban markets.

"Going forward, with the end of festival season, PV sales are expected to normalise; however, growth momentum is expected to sustain due to the upcoming harvest season boosting rural demand along with seasonal demand from weddings,â?? Goswami added.

PV industry growth in FY25 moderated to 3.7 per cent in FY25 due to the levelling off of pent-up demand, higher vehicle prices, and the high base effect of previous years. Despite these challenges, new model launches and strong SUV demand sustained overall momentum.

The pace of growth of the industry will depend on OEM pricing strategies, product refresh cycles, and sustained improvement in macroeconomic conditions, the report noted.

/IANS