New Delhi, March 27 (IANS) India’s automobile sector growth is likely to moderate in FY27 after a strong, policy‑led expansion in FY26, with demand having benefited from GST cuts, improved affordability and resilient economic activity, a report said on Friday.

The report from ICRA said GST changes primarily drove the demand, by improving affordability in two‑wheelers and enhancing fleet economics in commercial vehicles.

The commercial vehicle segment led the upcycle aided by GST rate cuts, higher freight movement and infrastructure activity, it said.

The ratings agency noted commercial vehicle wholesale volumes rose 23.8 per cent year‑on‑year in February 2026, while domestic wholesale volumes grew 12.5 per cent in the first 11 months of FY26.

Retail volumes remained robust, increasing 28.9 per cent YoY in the previous month, with medium and heavy commercial vehicles seeing strong growth. Light commercial vehicles (LCVs) continued to benefit from improved last-mile freight activity and higher sensitivity to GST-led cost reductions.

It predicted the segment to exceed its earlier growth estimates of 7-9 per cent for FY26, before moderating to 4-6 per cent growth in FY2027.

“While demand momentum remains healthy, elevated funding costs and a preference for pre-owned vehicles, particularly in the LCV segment, could act as near-term constraints,” the report said.

The two-wheeler (2W) segment saw a broad-based recovery, with volumes likely to reach a multi-year high in FY26, driven by improving rural demand, better financing availability and GST-led affordability gains.

The ratings agency forecasted domestic wholesale volumes to grow by around 9 per cent in FY26, before moderating to 3-5 per cent in FY27, reflecting a higher base. Even so, underlying demand is expected to remain supported by replacement cycles and healthy rural incomes, the report maintained, stressing GST rate cuts increasing affordability for two-wheelers below 350 cc.

“Growth is expected to normalise in FY27, given the higher base and emerging challenges from global uncertainties and input cost pressures. But investments in electrification, steady replacement demand and improving rural incomes will support the sector over the medium term,” it forecasted.

—IANS

aar/rad