The Indian passenger car industry is zooming ahead with the price and fuel efficiency. Customers are driving the small and compact car segment.

After a two-year cyclical slowdown, passenger car sales have started to accelerate. In the year 2003, India became the largest producer of small cars after Japan. It crossed the one million mark in FY 2004-2005. Maruti Udyog is celebrating its rollout of the 5 lakh cars this year. It is party time for Indian carmakers, specially the small and compact car manufacturers, who achieved a growth rate of 20% in car sales in the domestic market and exports. With customers increasingly opting for quality, performance and features besides the price, the compact car segment has overtaken the small car segment. The small and compact cars together occupy around 80% of the Indian car industry, leaving the mid-segment and luxury cars in terms of sales and volumes behind.

The primary factor driving the car industry is the rising household income. This is fueled by the growth in the service sector. In economic terms, there is a strong correlation between car sales and GDP growth. With lucrative jobs being available to young people today, there is an increase in the disposable income. The gradual decrease in the amount of income tax one has to pay from 50% in the 1990s to 30% in 2005 is also causing disposal income to rise. Having more disposable income on hand, the aspiration of Indians to own a car is highest among the developing countries. Increasing urbanization and proportion of young people in the population coupled with improving consumer finance facilities with the entry of banks into car finance has come as boon to the Indian car industry. Some car manufacturers too have started offering consumer finance facilities. These facilities are propelled by the reducing interest rates in the economy. Reduction in the excise duties on cars has helped reduce their prices. Abhay Srivastav, Automotive Sector Analyst, CRIS INFAC says, "India has sold 5 million two wheelers and 1 million cars in the FY 2004-2005. Already there are 52-55 million two wheelers on road. They are likely to move up in the long-term to own a car. This shows the potential market for small cars in India." At present, many models are available with the Indian car manufacturers at competitive prices and manufacturers are reducing the prices in the mid and compact segments to increase the sales volumes.

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