PV Segment Premiumisation

Think back to what an Indian road looked like twenty years ago, dominated by small, inexpensive hatchbacks built for a market where most first-time buyers cared above all about price. That market still exists, but it has been steadily shrinking as a share of the whole, replaced by a buyer increasingly willing to stretch budgets toward larger, better-equipped vehicles, a shift the industry calls premiumisation.

India's passenger vehicle market hit a record 4.47 million units sold in 2025, up 9.7 percent year-on-year, but the composition of that record tells the real story, sub-4-metre SUVs, mid-size SUVs and three-row SUVs collectively drove nearly all the incremental volume growth, while the traditional mini and small car segments that once anchored Indian car sales continued to contract in absolute terms.

This premiumisation shift is visible across every price band, not just at the top, buyers who a decade ago would have bought a basic hatchback now stretch toward a compact SUV, and buyers who once bought a compact SUV now stretch toward a mid-size one, a pattern reflected in the GST 2.0 tax slabs covered elsewhere on this site, where the government has had to explicitly define a 4000mm length and engine-size cutoff separating the shrinking small-car segment from the growing SUV one.

ICRA's forecast of just 1 to 4 percent overall PV volume growth for FY26 looks modest next to 2025's 9.7 percent record, and that deceleration, layered against continued strong SUV-specific growth, is exactly the signal to watch, it suggests the industry's real growth story going forward increasingly lies inside the mix shift toward SUVs, not in overall volume growth itself.