The Indian car market has emerged as one of the biggest in the world in recent years. As of 2024, with over 4 million sales annually, India is the third largest car market after the US and China. However, the luxury car market still accounts for only 1% of India’s total sales, so why is that the case? Yes, the demographic of India leans more towards budget or mid-segment cars rather than luxury cars. But there is another reason, which is the price of these cars. You also might have wondered why luxury cars are expensive in India. Is there a particular reason? Well, there are various reasons for that. In this blog, we will list the top 10 reasons why luxury cars are so expensive in India.
Why Luxury Cars are Expensive in India? Here Are 10 Reasons
BMW’s M3 is a car that Americans can buy for around ₹80 lakhs, but it is available in India for ₹1.3 crore. What is the reason? Let’s discuss.
1.High Import Duties
The government of India imposes import duty on merchandise imported to India. This tax varies from one merchandise to another. However, it is one of the highest when it comes to cars. The majority of luxury cars are made abroad and then imported to India, so they have a hefty price tag. The import duty on luxury cars can be as high as 100% of the car’s cost. This is one of the main reasons why luxury cars are expensive in India.
2.GST and Cess
By definition, luxury cars are considered luxurious goods. As a result, they are reserved for the highest tax bracket in the Indian GST tax slabs, i.e. 28%. In addition, luxury car owners also have to pay a Cess tax at the time of the purchase, which is also the highest for luxury cars at around 22%.
3.Exchange Rate Fluctuations
As mentioned above, almost all luxury cars are made outside India. As a result, the cost of these cars can also depend on the Rupee’s exchange rate. For instance, imagine a car worth $100,000 in the USA, and suddenly, the exchange rates fall, and the Indian Rupee becomes weaker. In this case, the price of the car will increase. This can be another reason why luxury cars are expensive in India.
4.Localisation of products
As mentioned above, most of the luxury cars sold in India are not manufactured here, and this is one of the top reasons why luxury cars are expensive in India. Producing vehicles in a foreign country makes them liable for high import duties, resulting in high costs. Moreover, the low cost of labour in India will further decrease the cost of the cars.
5.High-End Features and Technology
Luxury cars usually come equipped with state-of-the-art technology, which adds to their value. The cars also have high-end features and optional features, which increase manufacturing costs and are then passed on to the customers. This makes it quite obvious why luxury cars are expensive in India.
6.Brand And Exclusivity
Most of the luxury cars are from prestigious brands that charge extra just because of their brand name and the heritage associated with them. Brands such as Mercedes, BMW, Audi, Rolls Royce, Bentley and Jaguar Land Rover have a long and steeped heritage, and make some of the most expensive cars in the world. This is why luxury cars are expensive in India, people don’t only pay for the car but the name, brand and heritage that comes with it.
7.Limited Production Run
Limited production run of these cars is also one of the reasons why luxury cars are expensive in India, and the world Most of the luxury cars in the world are not as abundantly produced as normal cars, which adds to their value. This is even more acute in India. As mentioned above, most luxury cars in India are made in foreign countries, and in order to make a car suitable for India, i.e., Right-handed, companies have to invest some extra money, which they cover from their customers.
8.Safety And Emission Standards Compliances
By default, luxury cars are made to adhere to pretty much every safety regulation. However, different countries have different safety and emission compliances, and meeting those requirements can significantly affect the value of a luxury car. In recent years, India has made its safety and emission compliances much more potent and as a result, the cost of luxury cars has gone up significantly. This is one of the top reasons why luxury cars are expensive in India.
9.Dealer Margins And Infrastructure Cost
What many people don’t consider is that establishing and maintaining luxury car dealerships requires significant investment and training staff. This investment drives the cost of luxury cars up. In many luxury car dealerships, there are special sales reps for super-luxurious cars, and they require different training than the rest of the bunch. Again, this requires special training, which is why luxury cars are expensive in India.
10.Limited Market Size and Demand
One of the main reasons luxury cars are expensive in India is the country’s market size. The size of the Indian car market has increased significantly in the last few years. However, premium or luxury car sales are still not as high as those of other segments. To make their imports and other investments viable, car manufacturers charge more for the same car in India.
Will The Price Discrepancy Ever Go Away?
India might have higher car prices than the rest of the world for now. However, this is poised to change in the next few years. The Indian government is trying their best to invite various companies to invest in India and set up their manufacturing facility. Recently, Tesla was in talks with the government about setting up a manufacturing plant. However, the plan has been halted for now, citing some regulatory and investment issues. India is the third biggest market in the world, and it’s only a matter of time before car manufacturers understand India’s value in the future of automobiles and set up their manufacturing facilities in the country. So, now you know why luxury cars are expensive in India.
