Despite the near doubling of high-net-worth households in India over the past few years, India’s luxury car market remains niche. While GST cuts may provide a short-term boost, lasting growth will require deeper reforms in policy, infrastructure, and consumer mindset.
03 Oct 2025 | 6658 Views | By Prerna Lidhoo & Ketan Thakkar
When Sahil Chhabra, a first-generation business owner, walked into a BMW showroom in Gurugram last year, he thought he was finally about to tick a box off his wishlist. The 3 Series had been his college obsession - sleek, powerful and the ultimate badge of success. But as the weeks ...
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When Sahil Chhabra, a first-generation business owner, walked into a BMW showroom in Gurugram last year, he thought he was finally about to tick a box off his wishlist. The 3 Series had been his college obsession - sleek, powerful and the ultimate badge of success. But as the weeks went by, excitement gave way to cold math.
The on-road price nudged Rs 70 lakh once taxes and registration were factored in. Plus, the annual service packages looked steep, and he discovered that a three-to-five-year-old BMW could lose more than half its value. Three months later, Sahil drove home a Toyota Fortuner bought at a price tag of around Rs 50 lakh.
“It has all the features I wanted, plenty of space and great mileage. Why spend a fortune when you can get it all for less?,” he says. Chhabra’s story is the quiet reality behind India’s stagnant luxury car market. The aspiration exists, but so do cultural brakes and a deep-rooted instinct to prioritise practicality and savings over showmanship.
This is striking because India is, on paper, wealthier than ever. According to the Mercedes Benz-Hurun India Wealth Report 2025, India now has 8,71,700 millionaire families— up 90% from 2021. This rising tide of affluence hasn’t yet lifted luxury car sales beyond a narrow base. Despite a booming economy and an expanding cohort of dollar millionaires, luxury vehicles still account for just over 1% of India’s passenger vehicle market.
Mercedes-Benz, Audi, BMW and others are selling more cars than before, but penetration has barely shifted because of high taxes, steep ownership costs and a cultural bias towards value. The latest GST reforms offer a short-term shot in the arm.
With the cess scrapped, luxury internal combustion engine (ICE) cars now fall under a flat 40% slab, prompting across-the-board price cuts. BMW has trimmed the X7 price by nearly Rs 9 lakh; prices of Jaguar Land Rover’s Range Rover portfolio is down as much as Rs 30.4 lakh; Mercedes-Benz, Audi and Volvo have also rolled out substantial reductions.
Industry executives expect a surge in bookings through the festive season. But as the market’s experience shows, tax tweaks alone may not be enough. Once inflation, currency swings and road taxes creep back in, the affordability gap re-emerges. In the long run, the segment will need deeper reforms and a shift in consumer behaviour to move from aspiration to wider adoption.
Anas Rahman Junaid, founder and chief researcher at Hurun India, draws a strong connection between India’s surging millionaire households and the luxury car market. He says the rise of HNIs shows India’s wealth creation is real and resilient, rising in tandem with GDP growth, Sensex gains, new billionaire entrants, and luxury car sales.
“Luxury consumption for premier cars has gone up by 83% in the last 4 years. So, if you look at the millionaire households growth, that is also 90%. However, this may be more coincidental rather than structural,” he explains. Junaid believes that as India’s GDP doubles to $10 trillion, the 871,000 millionaire households will at least triple by then with “the bottom base getting further up and more,” and that the next 10–15 years will be “a golden age for luxury cars” as inheritance, startups, professionals and investors fire up wealth creation from all cylinders.
In markets like the US or China, premium cars are an extension of lifestyle, an almost natural upgrade as wealth rises. In India, they’re still a tougher sell. The desire is undeniable, the purchasing power is climbing, yet the segment remains a slim sliver of the market hemmed in by punishing taxes, patchy infrastructure, and a deeply ingrained value-for-money mindset.
How else do you explain the paradox of a country where people snap up Rs 60–90 crore apartments in DLF Camellias, which boasts of 191 billionaires and over 900,000 millionaires, and where they don’t think twice before spending Rs 5–50 crore on a wedding yet hesitate to park a Rs 70 lakh luxury car in the driveway?
The Cultural Handbrake
At first glance, Indians seem to enjoy conspicuous consumption: billion-dollar wedding industry, the dominance of gold jewellery in household assets, the boom in designer wear. But the market for cars, especially those with a price tag north of Rs 40 lakh, plays by different rules. Cars are visible, expensive, and come with recurring running costs.
They also depreciate, making them feel less like a trophy and more like a liability. This caution is hardwired into the country’s economic DNA. India is traditionally a savings-based economy. In 2024, gross domestic savings stood at roughly 28% of GDP, compared to about 19% in the US, 17% in the UK and 24% in Japan.
In other words, Indian households tend to lock their wealth in savings, real estate, or gold rather than in financed, depreciating assets. And when big-ticket purchases do happen, they’re often family decisions, weighed against competing priorities like property, education, or business investments.
Even for those who can afford them, luxury cars are often rationalised away as “unnecessary” or postponed until “later.”
Arun Malhotra, Auto Industry Expert and Former MD, Nissan Motor India says that the pandemic-driven growth in the luxury car market was largely pent-up demand that has already waned. “The growth in the luxury market is a challenge. Prices are very high for luxury cars. The ticket size has gone up while the volumes might have remained stagnant. It's heartening for a dealer that the average ticket size is now 75-80 lakhs. It used to be 50 lakhs.”
He said that many Indians prefer not to be publicly visible as wealthy, and money is often not the constraint: “I don’t think India has just 4,000 people who can buy luxury cars. Luxury cars depreciate faster. Maintenance is a lot more. Dealers are also responsible. Their service rates are astronomical. Rs 30-35 lakh cars do better because they give the same space, features and comfort. India has a conservative mindset which is the biggest dampener for luxury cars,” he said.
Malhotra adds that the entry-level luxury segment is growing, driven by young professionals eager to signal success, but the numbers remain modest at around 3,500 units. “The problem with luxury brands is that they haven't lived up to their potential in India... The biggest inflection point is mindset change. Probably today there’s no wow factor. The overall growth has been disappointing,” he adds.
According to VG Ramakrishnan, Designated Partner at Avanteum Advisors, early growth was constrained by availability, limited models, and income levels, but a deeper cultural factor was also at play: “People in India don’t want to flaunt their wealth. Value equation and brand association is not there for some people. It’s remained like this for a long time.”
Earlier forecasts, such as 7.5 million vehicles by 2015, did not materialize and growth was largely driven by the IT sector and startup founders, a trend he believes will ease up. According to Ramakrishnan, the real trigger for the sector will be lowering prices, although global protectionist tendencies may complicate trade. Nevertheless, he identifies green shoots: the number of high-income individuals in India has grown significantly.
Income tax returns filed by individuals earning over Rs 1 crore surged by 43% to 3.21 crore in FY25 from 2.24 crore in FY21. “Incomes have gone up at the top end of the pyramid. That could be a huge trigger for growth,” he adds.
Taxation Barriers
Even with product innovation and financing flexibility, Vikram Pawah, CEO, BMW Group ANZ and former President of BMW India, says that the biggest barrier to luxury adoption is India’s punitive import duties.
“We’re the most highly taxed car market in the world. Around 62% of what you pay for a luxury car is taxes. Our customers travel, they know global price points. If India wants parity with other developed markets, taxation has to align; not necessarily be low, but be equal across the board,” he said.
Automakers feel that the GST reforms will aid in short-term adoption. Balbir Singh Dhillon, Head of Audi India, says the government’s GST tax reform is a step in the right direction. “The recent GST reform is a positive development for the auto industry as it brings greater clarity and consistency to the tax structure. For the luxury car segment, such consistency is crucial as it builds customer confidence and creates a stable environment for long-term growth.”
According to Dhillon, taxation has historically been one of the biggest barriers to deeper penetration. “Higher taxation has been one of the major barriers to the deeper penetration of luxury cars in India. A more rational framework will help reduce this gap and make the segment more accessible to aspiring customers over time.”
Mercedes-Benz India expects the government’s recent GST rate cut to fuel strong double-digit growth in the short term, but has warned that macroeconomic headwinds could blunt the longer-term impact. The company has already seen a shift in customer behaviour around the announcement of the tax change.
“An average reduction of 5–6% will have a positive impact on demand in the next 4 months. The reduction in GST will immediately translate into better affordability for customers and boost demand,” said Santosh Iyer, Managing Director and CEO, Mercedes-Benz India. “But over time inflation and currency depreciation could offset these gains. For the long term, that 5–6% will be eroded with prices and it'll go back to the status quo. When you see a full year impact, you'll see a slight flattish growth,” Iyer added.
Despite the constraints, Mercedes-Benz’s sales in India have mirrored the growth of the market. “We have done 2 lakh cars in India in 30 years, but the 1 lakh cars have come in the last six years,” Iyer noted, pointing out that the company has resisted the temptation to launch stripped-down products. The average selling price has risen from Rs 60 lakh to Rs 1 crore over the past few years.
Unlocking Potential
Against the backdrop of a modest 4-5% growth in India’s overall passenger vehicle market in the last few years, the luxury segment has clocked around 9–10% growth. BMW itself is growing even faster, up 15% in the same period. Yet Pawah isn’t satisfied. “Ten percent growth is solid,” he says, “but I think it should have been 15–20%. We’re still at 1.2–1.3% of the total market, which is nothing compared to the potential.” That “potential” has been at the heart of BMW’s ‘Unlock India’ strategy, an effort to make the premium segment more appealing and accessible without diluting the brand.
One such move was the launch of the longwheelbase X1, which Pawah calls a “hit” thanks to its sweet spot in the price-to-size ratio, crucial in a country where buyers often drive with family or prefer to be chauffeur-driven. The results are telling: 50% of X1 buyers are first-time luxury car customers, up from just 25–30% before the model’s update. BMW has racked up nearly 2,000 bookings in under six months for the variant. Post-COVID, Pawah saw a spike in what he calls the “YOLO” effect, a willingness to splurge without overthinking.
That fever has cooled, but a more enduring trend has emerged: Younger buyers are entering the segment earlier. Instead of buying luxury as their fourth or fifth car, many are now upgrading by their second purchase. Also, the aspirational gap between entry-level luxury and flagship models is shrinking, with BMW ensuring similar technology and features across its range.
He says that the buyers are more valueconscious than price-conscious, prioritising space, practicality, and total ownership cost over sheer badge value. India’s luxury car future, Pawah predicts, will be driven by a demographic dividend: more than half of India’s population is under 35, and they’re moving up the luxury ladder faster than previous generations.
“The replacement cycle is shortening,” he says. “Overseas, people change cars every 26–32 months. In India, it’s still longer but coming down. If we keep recruiting first-time buyers and making it easy for them to migrate upward, the market share will grow naturally.” Luxury brands say that India has many factors working in its favour including very low car ownership compared with the West—urbanisation, a median age of just 29, rising per-capita incomes and a doubling of the HNI population from 8.5 lakh to 16.5 lakh by 2027.
For Audi, pre-owned cars have already become a feeder channel, with used car sales at 75% of its new car volume in 2023. Another positive trend is the narrowing gap between mass-market premium models and entry-level luxury cars. Dhillon calls it “a positive step because it just widens the whole market” and gets customers ready for luxury brands.
According to Jyoti Malhotra, Managing Director, Volvo Car India, India’s luxury growth story rests on three enablers: policy stability, broader model availability, and an expanding aspirational class with transparent incomes. Put together, they could accelerate the market’s long-anticipated breakout, he adds. Malhotra warns against reading too much into the topline number.
“India is like a subcontinent. You have to look at GDP per capita district by district. In NCR, car penetration is over 200 per 1,000 people. In some states, it’s negligible.” The total addressable market (those with incomes and aspirations aligned to luxury) is far smaller than India’s population suggests. At a Rs 50 lakh-plus price point, the potential buyer pool is in the low single digits of the income-earning population.
One bright spot, he says, is the booming pre-owned luxury segment, which Malhotra calls “the bridge into new luxury.” Volvo’s global ‘Select’ certified used-car program launched in India two years ago and is expanding rapidly. “Even if it’s second-hand, people want the badge. That aspiration will eventually move them into new cars,” he says.
Free Trade and the Future
With tariff talks and potential FTAs with the US and EU in play, could cheaper imports spur growth? Malhotra is cautiously optimistic. “Free trade may not directly cut prices, but it strengthens the economy, opens markets, and signals that the days of protectionism are over. That mindset shift matters,” he says. JLR India’s MD Rajan Amba says that even a steep duty cut won’t directly translate into a 50% price drop, as per the public perception.
That’s because of transfer pricing in luxury car imports which is the price at which the parent company sells cars or components to its subsidiary or distributor in India. “Transfer pricing is fixed and only a smaller variable portion moves with duties. Luxury-car pricing cannot be reduced to a simple duty minus formula. A large component of the pricing which is fixed and then there is a variable which gets impacted by the duty,” he explains.
Consequently, India remains a tough market for global luxury brands. “India is a very low margin market, we have to try and make money. Adding to the challenge, prices have been climbing steadily due to input costs and exchange rates. Waiting for an FTA windfall could actually cost buyers more in the interim,” he said. JLR is actively counselling its dealer network and customers not to expect instant benefits.
“The implementation of the FTA could take a minimum of 9 months, maybe 12 months. So, the consumer should not be expecting anything till then. Plus prices inevitably tend to go up year after year because of escalating costs. So, no point in waiting because categorically, there’s going to be no impact. Only the special-vehicle (SV) and limited-edition imports—around 5% of business—may see some change. So, it’s business as usual,” he said.
Iyer believes the recent tax and interest rate reforms are significant but warns that the benefit may be wiped out by inflation and rupee depreciation. “Most luxury cars are still not fully localised, they will go through an inflationary path,” he said.
EVs as Green Shoots
India’s mainstream EV adoption may still be climbing the early part of the S-curve, but in luxury, the slope is steeper. Luxury buyers, often multi-car households, have the advantage of keeping an EV alongside an ICE vehicle. Charging at home solves range anxiety, and in a market where early adopters value technology and environmental credentials, EVs are a natural fit.
Perhaps the most striking shift in BMW’s case, for example, is that it now sells as many EVs as diesels, with each accounting for 17% of sales. BMW already has 3,000 EVs on Indian roads. Pawah credits two key factors: price parity between petrol, diesel, and electric versions of the same model—achieved by passing on GST benefits rather than retaining them—and identical product content across fuel types, which eliminates the perception that EVs are a compromise.
“Adoption of EVs is much faster in luxury than mass-market cars,” he says. “The usage patterns of luxury customers make it easier, and when the product feels the same, the decision is simple.” When Volvo launched the XC40 Recharge, Malhotra said adoption in their segment was “much better from the very beginning.” Even after a slowdown in early 2024 due to “negative views and confusion in the market,” momentum has returned.
“Almost one-fourth of our sales now come from EVs,” Malhotra says, with just two models — the XC40 and C40 Recharge. Volvo plans to add at least one new EV this year and another next year. Industry-wide, luxury EV penetration is already close to 12%, compared to 4% in the mass market.
Volvo’s own EV penetration is even higher — around 45% of its luxury portfolio in India. By 2030, Malhotra sees this growing to 50% plus, provided model availability improves. “If we have cars, adoption will only increase. The more the merrier. More choice will drive more EV sales,” he says.
For Volvo Car India, the target is clear: make half the portfolio electric well before 2030, while capturing a bigger share of an addressable luxury market that’s growing both from the top down and the usedluxury bridge up. “We’re very close to taking off,” Malhotra says. “The visibility won’t show up in 1.2% penetration numbers but in the clusters that matter, the growth will be unmistakable,” he adds.
Concerns around residual value, battery life, financing, and charging infrastructure are gradually diminishing. Malhotra says that home charging is a game-changer: “If you have a home charger, you are sorted… And if you are going for a long drive, then you have to plan a little bit. That’s the only challenge.” While GST on electric vehicles has stayed unchanged— offering continuity—Dhillon believes more needs to be done.
“It is also important to note that there has been no change in GST rates for electric vehicles. While this ensures continuity, there remains scope for additional policy measures that can accelerate EV adoption in the luxury segment. Together, these reforms and future interventions can support sustainable growth and enable greater penetration of luxury cars,” he said.
So what will it take for the segment to reach its true potential. For Audi India, the answer is clear: bring down the cost of acquisition and expand accessibility. This can be achieved through duty reductions under FTAs, new financing models like leasing, and wider availability of pre-owned cars to pull customers into the luxury fold.
“Our endeavour always is that the more accessibility we are able to give to our customers in terms of pricing, the more we will sell,” Dhillon says. The more cars Audi sells in India, the more “mind space” it wins at headquarters to bring additional models and technologies here. Pawah believes that significantly expanding the luxury car segment in India hinges on four interconnected strategies.
First, Product & Value Proposition: models must meet Indian buyers’ needs for space, practicality, and features at a price that feels justified. Second, Finance & Peace of Mind: products like BMW’s guaranteed future value plans now account for 70% of its financed sales (and 90% for EVs), lowering monthly EMIs by up to 40% and removing resale risk.
Third, Reach & Network Expansion: BMW is opening more service centres in emerging luxury markets as local demand justifies investment. Finally, Lifestyle Engagement: initiatives such as BMW’s Joy-Town festival, drift academies, curated culinary events, and dealership “lounge” nights during the IPL final all serve to deepen the emotional connection with the brand.
For Amba, the real upside in India’s appetite for exclusive, high-value editions. “We have the SV (Special Vehicles) business. We have the market edition which was Ranthambore and Masara. Then we have the special editions like RRS Black coming out. It allows us to focus on providing an even more elevated experience especially for people who want to craft their own vehicles or who want to have something which is unique and special. The fact is that you are owning something unique. It’s one of 12 and nobody will ever have it,” he says.
This “magnificence,” as Amba calls it, is what defines Range Rover’s appeal and what JLR hopes will fuel the next phase of growth. Iyer also argues that India’s per capita GDP—around $2,700—must keep rising to unlock the next wave of luxury consumption, much like China’s did after 2007.
Economic reforms that boost job creation and Capex, improve infrastructure and lower the cost of capital could accelerate this shift. “If issues of taxation and cost of capital are addressed and at the same time social security improvements happen, it could help shift households from saving to spending. That could help India reach that inflection point,” he said