India’s car market stares at stagnancy: It may need a policy kickstart

While the market did recover from the pandemic and today’s slowdown may yet turn out to be a blip, such weak offtake could also be a sign of premature saturation. In a country where only 34 cars are owned per 1,000 people, this would be a matter of alarm. The potential for growth, after all, ought to be immense. 

What we are seeing, though, is a scale-back of ambitions. Maruti Suzuki, India’s top carmaker, for example, seems convinced of a steeper road ahead than anticipated. Last week, its parent Suzuki Motor Corp reduced its sales target in India, aiming to sell an annual 2.5 million cars by 2030-31, down from its goal of 3 million units declared in October 2023. It now plans to launch just four electric vehicles (EVs) in the country during this period, two less than earlier planned.

Also Read: Mint Quick Edit | Tesla suspense: Is Musk’s EV brand ready to roll in?

It is possible that our car market is caught in the cusp of an EV transition. Under 100,000 new electric cars rolled onto Indian streets in all of 2024. While that’s a 20% increase over the previous year, it is just a sliver of overall car sales. 

No wonder India’s ministry of heavy industries has reportedly asked SIAM to suggest what the government can do to speed up EV adoption. Purchase incentives of the sort that helped electric two-wheelers zip ahead are likely to be proposed. But we still haven’t been able to crack a chicken-and-egg problem that drags the pace of EV switchovers down. 

India’s charging network is so sketchy that fossil-fuel burning vehicles are enjoying an extended reign. Only once prospective EV buyers are relieved of ‘range anxiety,’ the worry of running out of battery juice mid-journey, can we expect a significant acceleration in sales. 

Also Read: Network of networks: Data systems can transform India’s electricity supply

We need recharge options spurring EV usage, with each driving the other, but this virtuous cycle must be kicked off by investments in charging infrastructure. Since people look to the government for an assurance of power availability, this will need to be a state-led mission. 

In China, a link has been found between the adoption of EVs and the penetration of high-speed railways. The causality is unclear, but it may be on account of better charge-point density along electric railway lines plus popular perceptions of superior mobility offered by modern technology.

Also Read: Andy Mukherjee: India’s EV race with China may depend on high-speed trains

Another sales constraint might be high car prices in India. Not only is this sector protected from imports by high tariff barriers, it bears a heavy tax burden. While input costs have risen, mandates on safety, insurance and exhaust-control have pushed up final ‘on-road’ prices too. 

Recent policy tweaks indicate an easing of import duties that may see EV-maker Tesla test-launch its cars here. This could set the upper-end of the EV segment abuzz, but for the market to gain from a dash of extra competition, we would need tariff cuts that push every carmaker to slash costs and get more competitive. 

Sector-focused policy action, however, may fail to work if carmakers are staring at a broader red patch along their upward path: India’s uneven economic emergence. With sales of entry-level small cars shrinking, weak demand from first-time users has placed a big question mark on market expansion. To overcome this, skewed prosperity must give way to an economy that delivers more equitable outcomes.