Click here to view the latest developments on the India Budget 2026
With India already the fourth largest passenger car manufacturer and third largest passenger car market in the world, the sector’s trajectory is indicative of its potential to play a much larger strategic role in the national economy. Export ambitions are high: Indian automakers plan to increase passenger car exports from 15% of production in 2024 to 30% in the next five years.
Auto sector as ‘power-lifter’ for the Indian economy
The concept of a ‘power-lifter’ industry means sectors that can simultaneously boost exports, create domestic resilience and self-reliance, and anchor India more firmly in the global economic landscape. The Indian automotive sector embodies these characteristics. By expanding exports, the sector not only generates foreign exchange but also integrates domestic suppliers into global value chains, promoting industrial sophistication and employment.
Global uncertainties such as rising protectionism, tariff wars, supply chain disruptions and geopolitical conflicts have reshaped the trading environment. In such turbulent times, industries that can offer cost-competitive, high-quality products can gain market share as countries seek to diversify their sources of supply. The automotive sector’s ability to tap emerging markets while simultaneously seeking to gradually enter developed markets such as Europe, Japan and Australia positions the sector as a strategic asset. Successfully scaling up this sector can significantly cushion India from global economic headwinds while strengthening its self-reliance.Also read: Overpriced India can still weave threads of power
Government initiatives
The Indian government has shown proactive commitment to strengthening the automotive sector. Efforts focused on expanding trade partnerships, exploring new export markets and reducing vulnerabilities caused by over-reliance on external suppliers. Such initiatives aim to increase both export competitiveness and strategic autonomy.
In recent years, the government has launched several stimulus and tax reduction programs, and allowed foreign direct investment to expand India’s auto manufacturing and export base, increase EV adoption, encourage the local battery ecosystem, expand the deployment of charging infrastructure, and strengthen component manufacturing.
While the prospects for the Indian auto sector are promising, sustainable growth requires careful navigation of global trade dynamics. For example, Mexico, the third largest destination for Indian auto exports, recently doubled tariffs on several Indian goods with effect from January 2026. This underlines the importance of timely trade diplomacy in addition to production expansion. Trade agreements and strategic partnerships will be critical to securing stable export markets and maintaining growth trajectories.
Furthermore, the advancement of technological capabilities, especially in electric vehicles and advanced manufacturing processes, will determine India’s ability to compete in high-value markets. The government has already introduced an incentive program for rare earth magnets, a crucial component for cars.
Also read: The weapons that can fuel India’s growth
Policy pathways for the 2026-2027 budget
The Budget 2025-2026 has strengthened India’s EV and auto sectors by reducing customs duties on battery inputs and critical minerals, financing EV and auto PLI schemes, boosting demand through tax rebates, supporting auto SMEs and strengthening incentives for local manufacturing.
The upcoming Budget 2026-2027 offers a unique opportunity to strengthen the role of the auto sector as a power-lifter for the Indian economy. Various measures can increase the impact. These include boosting electric vehicle production and exports, strengthening the domestic components industry to reduce import dependence, and providing targeted support for technology adoption, research and development.
ET has reported that the 2026-2027 Budget may include a Rs 7,000 crore plan to build resilient global value chains (GVC), specifically for the auto sector. This would further strengthen domestic capabilities and global competitiveness, allowing the sector to scale up quickly and maintain its export momentum. The government’s commitment to a resilient domestic manufacturing ecosystem is visible in its broader support for capital equipment and supplier development. By encouraging localization and technology adoption, these initiatives reduce production costs, improve quality standards and help Indian automakers integrate more deeply into global value chains.
A holistic policy approach would integrate industrial capacity building with global competitiveness, ensuring that India’s automotive sector can simultaneously expand exports, deepen domestic industrial resilience and contribute significantly to national economic growth.
#Budget #Powering #Engine #Indian #Economy