India Two-Wheeler Market Set To Grow 6-9% In FY26 On GST Relief, Rural Recovery: ICRA

India's two-wheeler industry is set for expansion in the current financial year, with sales volumes projected to increase between 6 per cent-9 per cent compared to FY25, according to credit rating agency ICRA's latest market assessment released Tuesday.

The growth forecast hinges on favourable market conditions, particularly the recent reduction in Goods and Services Tax (GST) rates that is expected to enhance vehicle affordability for consumers. This tax relief comes at a time when the industry is witnessing steady replacement demand patterns across urban and rural markets.

August Performance

Industry data for August 2025 revealed contrasting trends between wholesale and retail channels. Original Equipment Manufacturers (OEMs) reported strong wholesale dispatch numbers, achieving 18 lakh units and marking a healthy 7.2 per cent year-on-year increase. This surge reflected manufacturers' strategic push to build inventory ahead of the traditional festive buying season.

However, actual consumer purchases told a different story, with retail sales expanding by a modest 2.2 per cent annually. Market analysts attributed this slower retail growth to excessive rainfall disrupting normal buying patterns and consumers delaying purchases in anticipation of the GST rate cuts.

Promising Rural Markets

The ratings agency remains optimistic about rural market recovery, citing healthy income levels supported by normal monsoon patterns. 

"This projection is supported by steady replacement demand, an expected urban demand recovery, healthy rural incomes driven by a normal monsoon, and the recent GST rate reduction, which is anticipated to support affordability and stimulate demand," the agency noted in its assessment, as quoted by news agency PTI.

Electric Two-Wheeler Segment

The electric mobility segment demonstrated consistent but gradual growth, with retail volumes reaching 1,04,725 units in August 2025. This represented a sequential month-on-month growth of 1.8 per cent, while market penetration remained stable within the 6-7 per cent range, indicating sustained consumer interest in electric alternatives.

Tractor Segment Outperforms

The agricultural machinery sector showed exceptional performance, with tractor wholesale volumes surging 28.2 per cent year-on-year in August 2025. This strong showing built upon cumulative growth of 11.7 per cent for the first five months of FY26.

The recent GST reduction on tractors to 5 per cent is anticipated to provide additional momentum, particularly during the upcoming festival season when rural purchases traditionally peak.

Weather Patterns And Agricultural Demand

Favorable weather conditions have created a supportive environment for tractor sales. The country received rainfall at 108 per cent of the long-term average through September 17, 2025, following an early monsoon onset. These conditions boosted farmer sentiment and agricultural prospects.

"Tractor volumes are estimated to grow at a moderate pace of 4-7 per cent in FY2026. This growth is firmly backed by above-normal monsoons, which are expected to support agricultural production," ICRA stated.

Retail tractor demand reflected this positive sentiment, with August volumes climbing 30.1 per cent year-on-year, driven by adequate rainfall and improved farmer confidence.

The industry anticipates additional demand acceleration as TREM V emission standards are scheduled to take effect from April 1, 2026. This regulatory timeline may encourage pre-buying activity as consumers and dealers prepare for compliance requirements.