Most of us have been reading stories regarding India’s K-Shaped recovery from Covid over the last couple of years wherein the rich are killing it thanks to their winnings in the stock market, in real estate and in venture capital whilst the poor are compelled to live off free food from the Government. However, in the genre of K-Shaped stories this one from the Indian Express is a spectacular one. Soumyarendra Barik & Anil Sasi of the Express share a mind blowing stat regarding the car demand in India:
“According to industry data, sales performance of entry-level cars priced below Rs 5 lakh – a crucial indicator of demand in the economy given that this segment largely attracts first-time buyers – is dire. This segment used to account for nearly a million units a decade ago – 9,34,538 to be precise in FY16. It has since declined to just 25,402 units in FY25.” [Bold font is ours]
So what exactly happened in India? Why did demand for entry level cars evaporate so comprehensively over the course of a decade? Here’s what the Express has to say:
“The entry-level car segment is in a bad shape, primarily due to two factors: higher price tag of Rs 4 lakh-plus due to better safety norms including six airbags, and sluggish income growth in the lower end of consumer base. The bigger problem is that an entry-level car costs nearly four times the prices of a scooter or motorcycle.
Slowing consumption growth is a trend that seems to be getting entrenched, despite some signs of recovery in rural areas. While real wage growth for rural agricultural and non-agricultural workers is providing some support to overall consumption growth, in the urban areas, new demand is simply not picking up to the levels seen in the post-Covid phase. As a result, corporates are seeing their performance tapering off, especially in urban centres..
In April-June 2025, passenger vehicle sales declined 1.4 per cent over the same quarter last year, and passenger car sales declined by more than 11 per cent in the same period. As such, not only is the expected graduation in a growing economy from two to four wheelers not happening, the former’s growth itself is stalling. The two-wheeler segment sales dropped 6.2 per cent to 46.74 lakh units in April-June 2025, pulled down by motorcycles and mopeds. When juxtaposed, suggests a dwindling of purchasing power at the lower and middle-class segments…
According to data collected by the NGO People Research on India’s Consumer Economy – which some carmakers refer to internally – car penetration in Indian households that have a yearly income of less than Rs 4 lakh reduced to 1.4 per cent in FY20, from 1.9 per cent in FY16. Car penetration in households that earn between Rs 4 lakh to Rs 7 lakh annually also reduced to 8.3 per cent from 12.1 per cent in the same time period. Families with incomes of less than Rs 4 lakh and between Rs 4 lakh and Rs 7 lakh are said to make up for around 80 per cent of all Indian households.”
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