India's Small Car Problem

Picture Credit: bbc.com

Only 12% of Indian households can currently afford to buy a car. That stark statistic, laid bare by Maruti Suzuki chairman RC Bhargava, highlights a deepening crisis in India’s passenger vehicle market. Once considered a symbol of economic aspiration, car ownership is increasingly out of reach for the average Indian family.

Bhargava emphasized that rising car prices—driven by regulatory norms, insurance hikes, and emission standards—coupled with stagnant incomes, have effectively priced out 88% of Indian households. Small cars, like the Alto and WagonR, once the foundation of India’s automobile boom, saw a 9% sales decline in 2024. What cost Rs 5 lakh in 2020 now sells for Rs 7 lakh—a leap unaffordable to most.

To own a car costing Rs 10 lakh, households must earn over Rs 12 lakh annually—a bracket that includes just a small fraction of the population. Meanwhile, India has only 34 cars per 1,000 people, far below China's 200+.

Policy moves have offered little relief. Tax breaks on hybrids don’t offset high prices. Scrappage incentives miss first-time buyers. Urban congestion, limited parking, and poor public policy have further discouraged ownership. Despite better rural roads and expanding highways, urban infrastructure woes still persist.

Picture Credit: about.bnef.com

Interestingly, small cars like Swift and Baleno perform well globally but are increasingly seen as luxury items in India. With domestic demand stagnant, Maruti is shifting focus to exports—up 17% in FY25, and projected to rise 20% this year.

Unless affordability improves and policies support small car ownership, India's car market will remain sluggish. For now, exports offer a lifeline, but for millions of Indians, the dream of owning a car remains just that—a dream.