India's auto sector expects the Narendra Modi government to create a "resilient, future-ready economy" that would bolster the country's firm standing on the global stage.

Ahead of Finance Minister Nirmala Sitharaman's Budget 2025 presentation, Santosh Iyer, MD & CEO of Mercedes-Benz India said: "We hope for forward looking measures from the budget that fosters sustainable economic growth and enhances India's global competitiveness. Continued push for BEV adoption by pursuing the existing incentives, infrastructure development and R&D initiatives will be crucial in accelerating India’s transition to green mobility, positioning us as a key player in the global BEV value chain." 

He further said, "Reducing trade barriers and simplifying regulatory frameworks can further integrate India into global supply chain, while any additional measures that lower the cost of doing business, can result in attracting new investments and boost advent of new technologies and innovation. By prioritizing these areas, the government can create a resilient, future-ready economy, bolstering India’s firm standing on the global stage."

The need for policy measures and incentives arises from the slowdown witnessed in both passenger and commercial vehicle segments. India, the world's third-largest automobile market, is experiencing a significant transformation driven by shifting consumer preferences, sustainability concerns, and evolving government policies, according to Rajat Mahajan, Partner, Deloitte India.

One of the most notable changes in the industry is the growing demand for Electric Vehicles (EVs) over traditional Internal Combustion Engine (ICE) vehicles. Consumers are increasingly opting for eco-friendly and cost-effective transportation solutions, a trend further strengthened by government incentives, including demand- and supply-side subsidies and a lower GST rate of 5% on EVs, compared to the higher tax bracket for ICE vehicles.

India has made significant progress in reducing import dependency and boosting domestic vehicle production, especially in the luxury segment. Various government policies and incentive schemes have provided a major push to indigenous automobile manufacturing, aligning with the Aatmanirbhar Bharat initiative.

Despite these advancements, the industry still faces regulatory challenges. A key concern remains the complex classification of vehicles, which has long been a roadblock for manufacturers. Mahajan suggests that removing the compensation cess on vehicle sales could further support the sector.

With rapid urbanization and rising disposable income, India's automobile sector is poised for steady growth. However, to attract global investments and boost domestic manufacturing, Mahajan emphasizes the need for strategic policy measures to create a favorable investment climate. Ensuring long-term sustainability and innovation will be crucial for maintaining India's competitive edge in the global automotive landscape.