Union Budget 2026: Budget in focus as auto sector favours stability, scale and sustainability

Bengaluru: The automobile and automotive sector functions as both a growth engine and a multiplier industry for the economy. It contributes significantly to GDP, generates employment, and boosts trade and exports. It is also an arena with immense scope for technological advancement and innovation.

The sector’s outlook mirrors consumer spending trends and complements infrastructure development. Against this backdrop, expectations from the Union Budget 2026 are high, as it is expected to shape the next phase of growth for the auto industry.

Carmakers have welcomed the implementation of GST 2.0 last year and are now seeking policy continuity and long-term clarity. With electric mobility gaining traction in India, the industry is urging the government to make provisions that encourage sustainability while strengthening domestic manufacturing.

“Sustained support for domestic manufacturing and increased allocation for road and transport infrastructure will be key priorities,” says Piyush Arora, MD and CEO, Skoda Auto Volkswagen India. “Rationalising the inverted duty structure for EVs will strengthen competitiveness and accelerate India’s transition to sustainable mobility. Continued focus on the EV ecosystem, alongside measures that support household disposable incomes, will be essential to sustain demand.”

Highlighting the government’s role in reviving the passenger vehicle and EV segments recently, Tata Motors Passenger Vehicles MD and CEO Shailesh Chandra was quoted as saying, “There is pressure on the entry-level EV segment, and some level of incentives would help… Fleet vehicles run significantly more than personal cars, so supporting this segment has a strong multiplier impact —  lower emissions and reduced oil imports. This segment was earlier identified under the FAME scheme and could be considered for PM E-Drive inclusion.”

Though luxury vehicles account for only about 1 per cent of India’s automobile market, the segment remains optimistic on demand, aided by improving infrastructure. According to Audi India Brand Director Balbir Singh Dhillon, continued focus on road development, rationalisation of duties, a stable long-term policy framework, and steady foreign exchange conditions would be instrumental in accelerating growth.

Mercedes-Benz India has also called for higher capital allocation toward infrastructure. “More rationalisation of customs tariffs is needed, similar to what has been done for GST,” says MD and CEO Santosh Iyer. “A robust Budget that helps stabilise the rupee will support forex stability and enable further growth.”

BMW Group India President and CEO Hardeep Singh Brar stressed the need for consistency in EV taxation. “The only thing needed is that GST on EVs remains untouched. The 5 per cent rate should continue till at least 2030; otherwise, it could derail the EV narrative. Support for electrification and charging infrastructure is critical.”

The EV segment is widely seen as being at an inflection point, with manufacturers seeking targeted incentives to scale production and adoption. River Mobility CEO and Co-Founder Aravind Mani points out that while localisation is progressing, domestic cell manufacturing remains nascent. “Maintaining GST benefits on cells during this transition phase will help manage costs responsibly and sustain EV adoption momentum,” he says.

From a technology perspective, Chara Technologies Co-Founder and CEO Bhaktha Keshavachar believes Budget 2026 presents an opportunity to strengthen India’s EV manufacturing base. “Recognising and supporting magnet-free motor technologies within existing fiscal frameworks would de-risk India’s EV ambitions and position the country as a global hub for resilient, export-ready EV powertrain solutions.”

As vehicles increasingly become software-defined, policy support must evolve accordingly. “Budget 2026 needs to directly address gaps in automotive software security and digital mobility,” says Sai Sridhar, MD, Elektrobit India.

Beyond product-specific measures, industry leaders are also calling for broader structural reforms. Next-generation factor reforms across land, labour, capital, and energy are seen as critical to sustaining high economic growth.

“Operating as a single market requires deeper alignment between Central and state imperatives,” says Kamal Bali, President and MD, Volvo Group India. He suggests a “GST-like council” to implement factor reforms more seamlessly and improve ease of doing business nationwide. Continued focus on trade agreements, logistics efficiency, and policy predictability, he adds, will be key to attracting private investment.

The auto ancillary sector is also looking to the Budget for support. Yokohama India MD and CEO Harinder Singh believes sustained infrastructure spending, enhanced export facilitation, and stable raw material trade policies are critical for India to emerge as a global manufacturing hub for premium tyres.

Reflecting industry expectations, Crisil Intelligence Director Hemal Thakkar says the Union Budget should enhance domestic automotive manufacturing and safeguard the industry from sudden global policy shifts.

“Higher incentives under the vehicle scrappage policy would provide a sustained boost, while continued focus on road infrastructure and last-mile connectivity remains essential,” he concludes.