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For decades, small cars drove India’s market for passenger vehicles. But this has changed in recent years. So much so that our largest car manufacturer, Maruti Suzuki, has rung an alarm bell. A senior executive for marketing and sales, Partho Banerjee, has said a sales revival in this segment would need incentives.
True, lower on-road prices would make small cars more affordable for users of two-wheelers looking to upgrade. By one reported estimate, from close to a million cars priced under ₹5 lakh a decade ago, this segment has seen unit sales shrink to a thin slice of a market that saw as many as 4.3 million passenger vehicles roll onto Indian roads in 2024.
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This drastic drop in the offtake of entry level cars also explains a plateau that overall numbers might be at risk of reaching. Last year’s market was only some 4% larger than it was in 2023. While the Indian economy’s recovery from the pandemic saw the sales of pricier four-wheelers surge, low-priced cars trailed off.
No doubt, some first-time buyers would have opted directly for bigger vehicles, but would-be new users have apparently turned scarce—with move-ups among existing car users acting as the passenger car market’s driving force. To the extent that this hints of premature market saturation, it’s a cause for concern. India’s penetration of cars, as per a recent Moody’s report, is just 44 per 1,000 people, while China’s is above 250.
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Yet, the case for a public subsidy to aid small car purchases is easily dismissed. For one, cars are not a necessity, even if they’re no longer a luxury except at the market’s upper end. For another, unlike electric vehicles and metro systems, no public cause warrants such state support. Importantly, state intervention of this kind tends to distort markets and is therefore best avoided.
Public funds can be put to better use if the country’s aim is to ease how people get around. At most, what may hold merit is the idea of a tax cut as a stimulus for this shrunk segment; big or small, cars in India remain relatively overtaxed by global standards.
Even so, what should catch the attention of policymakers is not Maruti Suzuki’s plea, but what it reveals of a key aspect of the auto sector’s dynamics. A big point to note is the bigger price leap it now takes for a two-wheeler user to buy a car. Thanks to tighter safety and emission standards, plus a costlier insurance mandate, on-road prices have risen in recent years, leaving large numbers priced out; all cars must have at least six airbags and meet stiff exhaust norms, while insurance payments are steep.
To be sure, two-wheelers are costlier too, but the gap is wide. Other reasons have also been identified for weak demand at this level. The rise of cab-hailing apps has reduced urban dependence on cars, for example, even as their value as status symbols may have declined among Gen Z cohorts.
Also Read: Cutting taxes on small cars is a quick fix that ignores the elephant in the room
Still, it is hard to get away from the impact of uneven prosperity on the Indian market for cars. Unlike earlier phases of rapid economic growth, enlarged incomes are showing up mostly in upper-end sales charts.
Similar trends are visible in other consumer-durable markets too. Smartphone sales, for instance, stood at 151 million in 2024, according to IDC, still below the 2021 level of 161 million, even though Apple, a premium brand, has enlarged its share of this pie. If these trends go on, they will pose hurdles for industrial expansion. To sustain itself, the economy needs to emerge more evenly.
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