A sharp rise in petrol and diesel prices is likely to dampen the auto industry’s growth rate, which has accelerated since the GST Council revised GST rates in late September 2025. With the possibility of more hikes in the near future as tension remain high in West Asia, experts believe this may force buyers to postpone large-ticket purchases and even trigger demand recalibration in the near term.
“Indian consumers have always been highly sensitive to running costs,” said Puneet Gupta, Director, S&P Global Mobility. He added that a sustained rise in oil prices creates both direct and indirect pressure on the automobile market.
“On one hand, higher fuel and input costs are likely to push vehicle prices upward, while on the other, increased fuel expenses elevate the overall cost of ownership. Simultaneously, inflationary pressures on essential commodities reduce disposable income, forcing households to prioritize basic necessities. As a result, customers may increasingly gravitate towards lower variants, smaller vehicle segments, or more fuel-efficient mobility solutions to remain within their budget constraints,” said Gupta.
Central government-run oil marketing companies on Friday raised the petrol and diesel prices by Rs 3 per litre each amid a spike in global energy prices. Petrol prices have risen from Rs 94.77 to Rs 97.77 per litre, while diesel prices have increased from Rs 87.67 to Rs 90.67 per litre in New Delhi. In Mumbai, petrol now costs Rs 106.68 per litre, while diesel price has been hiked to Rs 93.14 per litre.
Saket Mehra, Partner and Auto & EV Industry Leader, Grant Thornton Bharat said that escalating geopolitical tensions and continued uncertainty around the Strait of Hormuz have tightened global oil supply and kept crude prices elevated.
“From an auto sector perspective, past cycles show that sustained fuel inflation directly impacts demand—particularly in price-sensitive segments such as two-wheelers and entry-level passenger vehicles, where operating costs are a key decision driver. The current cycle could be sharper, with pressure extending beyond petrol and diesel. Rising CNG prices are increasing operating costs for taxis and shared mobility, which is likely to push up urban commute expenses and have a second-order impact on discretionary vehicle demand,” added Mehra.
He stated that while the current increase is moderate, industry estimates suggest that a fuller pass-through could imply additional hikes in the range of Rs 10–15 per litre if global prices remain elevated. “This would trigger a more visible demand recalibration in the near term. At the same time, it is likely to accelerate an ongoing structural shift—towards fuel efficiency, alternative powertrains and electric mobility—turning a cyclical pressure point into a longer-term transformation opportunity for the sector,” said Mehra.
India’s automobile sales surged sharply in FY2025-26, with all major vehicle segments posting their highest annual sales in seven years. According to Society of Indian Automobile Manufacturers (SIAM) data, total domestic vehicle sales rose 10.4% year-on-year to 2.83 crore units, with passenger vehicles, two-wheelers, three-wheelers and commercial vehicles recording their best annual performance in recent years.
Industry executives say surging retail fuel prices could boost demand for electric vehicles, whose running costs are significantly lower than those of internal combustion engine (ICE) vehicles. Shailesh Chandra, managing director and chief executive officer of Tata Motors PV (TMPV) said on Thursday that they have seen a 25-30% surge in EV bookings after the West Asia crisis.
“Our growth is higher because of new model launches. We are hiking production by 10% from this month but a lot depends on the capacity that our vendors have because they need to ramp up too,” said Chandra while speaking to the media after TMPV’s Q4FY26 results.
