The Middle Class Struggles to Afford Cars in India: A Market Shift and Taxation Crisis
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
In her post, Goel reflects on how her father bought their first family car for ₹3.5 lakh, a significant milestone for many Indian households at the time. Today, the same economic tier is struggling to afford even the most basic models. The Toyota Fortuner, for example, costs ₹45 lakh in India, but only ₹30 lakh in Abu Dhabi. A Jeep Wrangler in India is priced at ₹67 lakh, while it costs around ₹30 lakh in the U.S. “Same cars. Same companies. Drastically different prices,” Goel wrote.
The root cause of this disparity lies in the taxation structure. Cars in India attract a base 28% GST, plus a cess that varies by engine size and vehicle type, pushing total levies up to 50%. Imported cars face duties as high as 110%. “You’re not overpaying to make [car companies] rich,” Goel wrote. “You’re paying to keep up with systems, aspirations, and policies.”
It’s not just about taxation. The market has shifted hard toward SUVs, which now make up more than 55% of all car sales. Hatchbacks, once the go-to for first-time buyers, are disappearing. Meanwhile, features once considered luxury—touchscreens, sunroofs, alloy wheels—are now expected as standard, silently inflating base prices.
Add to that rising input costs—rubber, aluminum, imported electronics—amplified by a weakening rupee and global disruptions, and prices swell further. Regulatory mandates like BS6 emission norms and compulsory safety features tack on thousands more.
Despite the perception, Goel points out, automakers aren’t making a killing. Most operate on margins of just 5–8%. The takeaway is brutal: car ownership in India is no longer a stepping stone for the middle class—it’s a financial leap few can afford to make.
This situation is not just an economic issue but a social one. The middle class, which has long been the backbone of India’s economic growth, is now finding it increasingly difficult to achieve the basic milestones of a better life. The government and the automotive industry need to address these issues to ensure that car ownership remains within reach for the average Indian family.
The future of the car market in India depends on a balanced approach that considers both economic and social factors. Only then can the middle class regain its place behind the wheel, driving towards a better future.
Frequently Asked Questions
Why are cars more expensive in India compared to other countries?
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.
What is the impact of the shift towards SUVs on the car market in India?
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.
How do regulatory mandates affect car prices in India?
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.
What is the average profit margin for automakers in India?
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.
What can be done to make cars more affordable for the middle class in India?
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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