India’s Passenger Vehicle Sales to See Modest Growth Amid Inventory Challenges

The passenger vehicle sector in India is expected to see an increase of 1 to 4 percent in noncommercial volumes this financial year, according to ICRA. The growth in the first four months (April-July) was negative, with sales declining by 1.1 percent. This follows a strong performance from the previous year and is worsened by rising supply pressures at both the manufacturer and dealership levels. Industry experts point to excess unsold stock as a reason for the cautious outlook. As a result, original equipment manufacturers (OEMs) are carefully adjusting production and distribution to prevent surplus.

Despite these challenges, there are some positive signs. The launch of new models by major OEMs continues to attract interest and increase showroom traffic. Additionally, proposed changes to India’s Goods and Services Tax (GST) system—specifically reducing the number of tax slabs from four (5, 12, 18, 28) to two (5 and 18)—could boost demand, especially in price-sensitive areas. These changes are seen as likely to improve affordability and address mismatches in the market.

Data from July shows an 8.9 percent increase in noncommercial sales compared to the previous month, as manufacturers increased supply in preparation for the year’s major festive season, a key sales period in India’s automotive calendar. However, year-on-year volumes remained flat at around 340,000 units. Retail sales performed slightly better, up 10.4 percent sequentially, but still saw a 0.8 percent decline compared to a year earlier. This indicates some consumer caution, influenced by external factors like overall economic sentiment and cost pressures from rising interest rates and operational expenses.

The Sport Utility Vehicle (SUV) segment is a notable exception to these modest trends, with SUVs accounting for roughly 65-66 percent of total passenger vehicle sales. The high share of SUVs highlights a shift in consumer preference towards fuel-efficient vehicles with better ground clearance and perceived versatility. Utility vehicles, in particular, are expected to remain the main driver of growth for the sector.

Another factor impacting the industry is the import market, which saw a 9 percent year-on-year increase in July, mainly driven by key players like Maruti Suzuki India and Hyundai Motor India. Exports are becoming more important as Indian manufacturers look beyond domestic markets to balance shifting demand cycles and pursue new growth opportunities abroad.

Supply management continues to be a significant concern. By the end of July, dealership supply levels reached 55 days, which is considered high and a potential warning sign for profitability if not addressed in the coming months. Expert consensus is that prolonged supply build-up could lead to unexpected production cuts or promotional campaigns to clear excess inventory, resulting