India's middle class is finding it increasingly difficult to afford cars due to market shifts, rising input costs, and high taxation. The shift towards SUVs and the disappearance of affordable hatchbacks are exacerbating the problem.
Middle ClassCar AffordabilityTaxationSuvsHatchbacksReal EstateJun 28, 2025
Cars in India are more expensive due to high taxation, including a base 28% GST and additional cess, as well as import duties that can be as high as 110%. Additionally, rising input costs and regulatory mandates like BS6 emission norms and safety features further increase the prices.
The shift towards SUVs, which now make up more than 55% of car sales, has led to a decrease in the availability of affordable hatchbacks. This trend, combined with higher prices, makes it more difficult for the middle class to afford cars.
Regulatory mandates such as BS6 emission norms and compulsory safety features add to the cost of car production, which is then passed on to consumers. These additional costs can significantly increase the base price of a vehicle.
Most automakers in India operate on profit margins of just 5–8%, which is relatively low. This suggests that the high prices of cars are not primarily due to excessive profit margins but rather the high costs of production and taxation.
To make cars more affordable, the government could consider reducing taxes and duties on vehicles, especially for entry-level models. Additionally, supporting local production and reducing import costs could help lower the overall prices of cars in India.
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