Fuel-efficient small car, where art thou?

This week, Maruti Suzuki flagged slowing small car sales and sought GoI’s intervention to prop up this segment. Entry-level cars priced below ₹5 lakh, which accounted for nearly a million units in FY16, have declined to 25,402 units in FY25. Buyers are not upgrading from motorcycles to entry-level cars due to low-income growth in the target segment. New safety features, such as airbags and sensors, have also pushed the purchase barrier higher. A lower tax rate on small cars is not encouraging sales, which raises the issue of having differentiated rates based on size and engine capacity. New incentives for EVs have largely bypassed Maruti Suzuki, which has prioritised hybrid engines.

The key takeaway is that India is a single-garage automobile market that grows when customers upgrade their vehicles. Customer preference among the car-owning population has shifted towards more expensive SUVs. But first-time buyers, who typically prefer small cars, have become scarce. Maruti Suzuki does make the point that India’s automobile industry cannot sustain its growth through expensive models at current low car ownership levels. India has a large unmet demand for personal mobility that cannot be served by motorcycles at one end and SUVs at the other. The missing link in a price-sensitive market is the fuel-efficient small car.

Coming from a company that seeded India’s car industry, the warning shouldn’t be taken lightly. Until recently, small cars made up around half of all car sales, particularly in rural areas where public transport networks are not robust. India has also prioritised its road network over railways to increase connectivity. Affordable cars running on small fuel engines do not require fiscal support to develop EV tech and a rural battery-charging network. The industry is drawing a lot of attention over futuristic plans. It would be a pity if mainstream carmakers lose their voice in the bargain.

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