Bhargava described India as “inherently a small car market,” arguing that models suited to Europe or America don’t fit India’s economic reality.
03 Nov 2025 | 1973 Views | By Arunima Pal
Income distribution data reveals compact vehicles remain essential for vast majority, debunking narrative of universal shift to luxury SUVs.
The widely held belief that Indian car buyers have collectively moved upmarket to larger SUVs and premium vehicles has been fundamentally challenged by Maruti Suzuki Chairman R C Bhargava, who ...
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Income distribution data reveals compact vehicles remain essential for vast majority, debunking narrative of universal shift to luxury SUVs.
The widely held belief that Indian car buyers have collectively moved upmarket to larger SUVs and premium vehicles has been fundamentally challenged by Maruti Suzuki Chairman R C Bhargava, who presented stark income distribution data showing why small cars remain critical for the overwhelming majority of Indian households.
"Households earning above ₹15 lakh a year form only about 10-12% of the total population. The remaining 85% have much lower income levels," Bhargava stated at the company's Q2 and H1 financial results press conference, dismantling the perception that aspirations alone drove the small car segment's decline over recent years.
The chairman argued that India's automotive market cannot be compared to developed nations without considering fundamental economic differences. "We are not like Europe, where the per capita income is around $40,000. If you compare India with the rest of the world, you also have to consider the income levels of people and the infrastructure," he explained.
Bhargava characterized India as inherently "a small car market" based on its economic reality, stating that what's suitable for Europe or America may not be appropriate for India in today's context. This assessment directly contradicts the narrative that emerged over the past six years as small car sales declined and SUV sales surged.
The data supporting Bhargava's argument became evident following the government's GST reduction on small cars announced on August 15. The response was immediate and overwhelming: during October's festive period, small cars in the 18% GST category grew 30%, while larger vehicles grew only 4-5%. Maruti Suzuki recorded its highest-ever retail sales, driven predominantly by compact vehicles.
"The perception some had—that aspirations of all Indians have changed, and nobody wants to buy small cars, and that the market has moved on to bigger and more luxurious vehicles—has proven to be incorrect," Bhargava said. "There are still many customers who prefer small cars as a much better form of personal commutation."
The chairman attributed the previous decline in small car sales entirely to affordability rather than changing preferences. When prices became prohibitive due to higher taxation and regulatory costs, many customers simply couldn't afford to purchase vehicles—creating the illusion that they no longer wanted small cars.
"The reality is that many couldn't afford to buy the more expensive small cars earlier, and now that prices have come down, they have returned to the market," Bhargava explained.
This affordability crisis had significant implications beyond individual purchasing decisions. The chairman noted that the government recognized how the situation "affected a large portion of the middle class and the overall impact it has had on manufacturing growth and employment."
The post-GST reduction response validates this assessment. Entry-level cars like Alto, S-Presso, WagonR, and Celerio saw their contribution to Maruti's portfolio jump from 16.7% before the GST change to 20.5% afterward. The company currently holds 350,000 bookings, with 250,000—over 71%—in the 18% GST category.
Furthermore, the demand is materializing across both urban and rural markets, with particularly strong traction beyond metropolitan areas. Bookings in the top 100 cities grew approximately 50% in the 18% GST segment, but tier 2, tier 3, and rural markets saw 65% growth.
Bhargava suggested that other automakers who shifted their product portfolios toward larger vehicles may need to reconsider their strategies. "I think many car makers will now realise what the nature of the Indian car market is. I expect some of them at least to revise their product mix," he said.
The chairman emphasized that Maruti would continue prioritizing affordability even at the expense of higher margins. "If it comes to the fact that we need a smaller car with a lower price, even if the margins are not very high, we would still do that," he stated, reinforcing the company's mission-driven approach.
Looking forward, Bhargava expects double-digit growth in the small car segment "for some period to come," suggesting the recent surge represents not merely pent-up demand but a sustainable market shift enabled by improved affordability.
The episode offers broader lessons about interpreting market trends in emerging economies. What appeared to be changing consumer preferences was, in reality, a affordability-constrained market where the vast majority of potential buyers were priced out rather than trading up by choice.