India’s Luxury Car Market Is Booming, But Challenges to Growth Remain

2011 was a surprisingly positive year for car manufacturers in India, as sales exceeded forecasted expectations and as the year’s final months saw an uptick in business across the board. This was especially true in the luxury car market. Due to rising incomes, changing tastes, and the emergence of luxury vehicles as impressive status symbols, the luxury industry continued its growth trend during the past year. The growth is expected to only continue. According to Reuters, the market is growing at a rate of 40 percent annually. Luxury cars, already a one billion dollar business in India, can expect to attain only a greater prevalence in the country in the years to come.

But numerous challenges and limitation remain that threaten to curtail the growth of the luxury market and keep India far behind China when it comes to such sales. If the industry is to truly realize the prediction of 40 percent annual gains, the following areas will need to be improved:

High performance cars are often stymied by India’s treacherous roads. Bumps, potholes, and cracks in the country’s paved roads means that cars are often susceptible to damage. This is especially a concern when it comes to luxury vehicles, since these cars usually ride lower to the ground and because they are so expensive that few owners want to risk even minor bumps and cuts. These days, many luxury owners transport their cars to supercar parades rather than drive them on the highways. This will need to someday change if the market is to truly succeed.

Almost all luxury cars in India are manufactured elsewhere and then imported into the country. The government charges high fees on such imports; taxes on imported luxury goods can sometimes approach 110% of the cost. This oppressive tax policy makes high performance vehicles far more expensive in India than in Europe.

The Economy
The global economic downturn has impacted even the luxury sector. Certainly, this is true of India’s luxury car market. Fiscal tightening by the Indian central bank has caused insurance quotes and financing costs to rise for potential buyers. At the same time, a decline in the rupee has made imported products more costly to attain.
Despite these challenges, India’s luxury car market shows definitive signs of expansion and vigor. But these issues need to ultimately be addressed for the market to reach its potential. Considering the country’s growth over the past couple decades, it is not unreasonable to predict that they will.