India’s used car market is experiencing remarkable growth due to several key factors. Increased disposable income and a rising demand for personal mobility are driving this trend. The organised sector of the used car market is expanding rapidly. Additionally, the recent decision by the Goods and Services Tax (GST) Council to impose an 18 per cent tax on the sale of used vehicles has sparked discussion.
Current Market Overview
The used car market in India was valued at USD 31.33 billion in 2022-23. It is projected to grow to USD 70.48 billion by 2027-28. The growth rate for used cars is expected to increase from six per cent between FY2017 and FY2022 to 16 per cent from FY2023 to FY2028. In contrast, the new car market is anticipated to grow at a much slower rate.
Sales Trends
In FY2023, over five million used cars were sold. This number is expected to exceed eight million by FY2028. The ratio of used cars sold compared to new cars is also changing. Currently, it stands at 1.4 but is projected to rise to 1.9 in the coming years.
Organised Sector Growth
The organised sector in the used car market has grown . In FY2011, it accounted for only 10 per cent of the market. By FY2023, this figure rose to 29 per cent and is expected to reach 45 per cent by FY2028. Companies like Spinny and Cars24 are leading this transformation, enhancing consumer confidence in purchasing used vehicles.
Changing Consumer Behaviour
Car ownership patterns are evolving. Previously, many owners sold their cars due to maintenance issues. However, now the majority are upgrading to newer models. In FY2021, 32 per cent sold cars due to maintenance issues, while 25 per cent did so to upgrade. By FY2023, the figures shifted dramatically, with 59 per cent selling to upgrade and only four per cent due to maintenance concerns.
Price Dynamics
The average price of used cars has risen . From Rs 4 lakh in FY2021, it increased to Rs 5.3 lakh in FY2023. This rise is attributed to the increased demand for newer models and better-conditioned used vehicles. The average age of used cars has decreased from six years in FY2011 to nearly four years now, with predictions of it dropping to 3.5 years by FY2028.
Market Potential
Despite the growth, India has a low per capita car ownership rate. With only 20 cars per thousand people, there is substantial potential for growth. In comparison, countries like China and Germany have higher rates. This indicates a vast opportunity for expansion in the used car market as living standards rise.
Questions for UPSC:
- Point out the factors contributing to the growth of the used car market in India.
- Critically analyse the impact of GST on the used car market in India.
- Estimate the potential for growth in car ownership in India compared to global standards.
- What are the implications of rising used car prices on consumer behaviour? Discuss with suitable examples.
Answer Hints:
1. Point out the factors contributing to the growth of the used car market in India.
- Increased disposable income among the middle class enhances buying power.
- Growing demand for personal mobility drives consumers towards used cars.
- Expansion of the organised sector, improving consumer confidence in purchasing used vehicles.
- Changing consumer behavior, with more people upgrading rather than selling due to maintenance issues.
- Government policies, including the GST on used cars, provide a structured market environment.
2. Critically analyse the impact of GST on the used car market in India.
- GST on used cars is set at 18%, affecting pricing and affordability.
- It applies only to registered sellers, potentially limiting its immediate impact on informal sales.
- The tax framework aims to formalize transactions and increase government revenue.
- Higher taxes may deter some buyers, affecting sales volume in the short term.
- Long-term, it could stabilize the market and enhance consumer trust in the regulated sector.
3. Estimate the potential for growth in car ownership in India compared to global standards.
- India has only 20 cars per thousand people, lower than global averages.
- Comparatively, China has 150, and developed countries like Germany and the US have over 500.
- Rising disposable income and urbanization are likely to boost car ownership rates.
- The growing middle class indicates a potential surge in demand for both new and used cars.
- With improved infrastructure and financing options, car ownership could see exponential growth.
4. What are the implications of rising used car prices on consumer behaviour? Discuss with suitable examples.
- Rising prices may lead consumers to delay purchases or opt for older models.
- Increased prices could shift focus toward financing options and loans for affordability.
- Consumers might prioritize features and condition over age, opting for newer used cars.
- For example, the average price rise from Rs 4 lakh to Rs 5.3 lakh reflects a demand for better quality.
- Higher prices may also stimulate a market for alternative transportation options, like leasing.
