New Delhi, September 2025 – Credit rating agency ICRA has released a positive outlook for the Indian automobile industry for FY2026, projecting steady growth across key segments. The report highlights favourable monsoon conditions, policy support, and festive season demand as primary drivers for growth, particularly in the tractor and two-wheeler categories.

Tractor Segment: 4-7% Growth Backed by Strong Monsoon and Rural Demand

The tractor industry continues to show resilience, with wholesale volumes growing 28.2% YoY in August 2025, and a cumulative growth of 11.7% YoY in the first five months of FY2026. Retail demand also surged, with volumes rising 30.1% YoY in August, reflecting positive farmer sentiment and robust agricultural activity.

According to ICRA, tractor volumes are expected to expand at a moderate pace of 4-7% in FY2026, supported by:

• Above-normal monsoon rainfall (108% of the long-period average as of September 17, 2025).
• Positive farmer sentiment and strong rural incomes.
• Recent GST rate cut on tractors to 5%, which is expected to further boost sales during the festive season.
• Potential pre-buying ahead of stricter TREM V emission norms, effective April 1, 2026.

Tractor OEMs are also expected to maintain strong credit profiles, aided by stable raw material costs and healthy operating leverage.

Two-Wheeler Industry: 6-9% Growth Driven by Festive Season and Urban Recovery

The two-wheeler segment showed a mixed performance in August 2025:

• Domestic wholesale volumes grew 7.2% YoY to 1.8 million units.
• Retail sales rose by 2.2% YoY, though growth was slightly constrained by excessive rainfall and purchase deferments linked to GST rate cuts.
• Exports surged by 27.5% YoY, sustaining strong growth momentum.
• Electric two-wheeler sales touched 1,04,725 units in August, marking a modest 1.8% sequential growth, with penetration steady at 6-7%.

ICRA forecasts a 6-9% YoY growth in domestic two-wheeler volumes for FY2026, supported by:

• Steady replacement demand.
• Recovery in urban demand.
• Stronger rural consumption backed by good monsoons.
• GST rate reduction, which enhances affordability and stimulates consumer demand.

Outlook: Stable and Positive Year Ahead

The ICRA report underscores that FY2026 will be a stable and positive year for the Indian auto sector, with policy initiatives, favourable rainfall, and improving rural-urban demand dynamics driving growth across tractors and two-wheelers. Together, these factors are expected to sustain momentum for the broader automobile industry through FY2026.