India's Automobile Sector to Witness Tempered 1.5% Growth Outlook in FY25: Report At the beginning of the year, the PV market experienced a temporary boost driven by channel filling, following strong retail sales and reduced inventory levels in December. However, this momentum is unlikely to be sustained as rising discounts are expected to dampen market growth in the coming months.

By Entrepreneur Staff

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India's automobile industry is set for a challenging fiscal year 2025, with passenger vehicle (PV) growth projected to remain subdued at just 1.5 per cent year-on-year (y-o-y), according to a report by Nomura. This sluggish expansion is attributed to weakening demand, though other segments, such as two-wheelers (2W) and tractors, may experience better growth due to external factors.

At the beginning of the year, the PV market experienced a temporary boost driven by channel filling, following strong retail sales and reduced inventory levels in December. However, this momentum is unlikely to be sustained as rising discounts are expected to dampen market growth in the coming months.

Among leading manufacturers, Mahindra & Mahindra's SUVs and LCVs, as well as TVS Motor's scooters, outperformed expectations, showcasing resilience in their respective segments. Conversely, Tata Motors (TTMT) struggled to meet market estimates, with its passenger vehicle sales falling below expectations.

A promising growth trajectory

Despite weak domestic demand, India's two-wheeler market could see some relief in FY25, thanks to a recovery in exports. While local sales have remained tepid, an increase in demand from international markets could help offset domestic sluggishness, providing manufacturers with a much-needed boost.

Unlike the PV segment, the tractor industry is forecast to expand at a rate of 7 per cent y-o-y. Government initiatives aimed at supporting the rural economy, including various subsidies and agricultural programs, have played a crucial role in sustaining demand. With increased government spending on rural development, farmers are likely to have more financial backing, which could lead to a further uptick in tractor sales.

Budgetary reforms

The recent personal income tax changes announced in the Union Budget are seen as a positive move for the automobile sector. However, the overall impact on vehicle sales is expected to be limited. A key reason for this is that 60 per cent of India's 80 million tax filers do not pay any tax. While individuals under the new tax regime may benefit from increased savings, a large portion of taxpayers continue to follow the old tax regime, where deductions reduce their overall savings potential.

As a result, tax cuts may not significantly drive automobile sales across the board. However, higher-income consumers, who stand to benefit the most from tax savings, are likely to invest in bigger vehicles, such as SUVs, rather than smaller, budget-friendly cars. This trend suggests that the premium automobile segment could experience stronger demand compared to the mass-market category.

Entrepreneur Staff

Entrepreneur Staff

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