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As India’s middle class grows, so does its appetite for wheels—from bikes to SUVs, car ownership is set to reshape economic mobility
Image Source: Getty
There is a common view that the middle class remains underrepresented in India’s policy priorities. Yet, it is this very segment—growing in size, aspiration, and purchasing power—that is quietly reshaping the country’s economic landscape. To engage with this argument effectively, defining who constitutes the middle class is essential. A 2021 report classifies 31 percent of India's population— earning between 5 and 30 lakhs per annum—as the middle class. However, the Household Consumption Expenditure Survey data indicate that 30 percent of the population spends only about INR 2.3 lakhs annually. Given the ambiguity in definitions, a 2012 Carnegie Endowment paper introduced the Car Index as an alternative metric, arguing that the middle class comprises those who earn beyond a threshold. This enables them to afford discretionary goods such as automobiles.
The Big Mac Index, on the other hand, uses the price of a hamburger as the yardstick to assess purchasing power parity (PPP) and currency differences.
Economists frequently use indices based on specific goods and ideas to gauge the temperament of the economy. For instance, the Recession or R-word index measures the frequency of usage of the word ‘recession’ in major newspapers to identify recessionary attitudes. The Big Mac Index, on the other hand, uses the price of a hamburger as the yardstick to assess purchasing power parity (PPP) and currency differences. The Car Index is a relatively strong metric, as it demonstrates the economy’s actual consumption and purchasing power. However, using car ownership to identify the middle class has its limitations. Vehicle ownership is influenced not just by income but also by factors such as financing accessibility, urban-rural mobility needs, and cultural preferences. Thus, the Car Index, while useful, might not fully capture the nuances of middle-class growth.
There is a strong correlation between per capita car ownership and per capita income levels, as illustrated in Figure 1. This relationship aligns with Engel’s Law, which states that as household income rises, the proportion spent on essentials declines, freeing resources for discretionary expenditures such as vehicles. Countries transitioning from low to middle-income experience a surge in car ownership, eventually stabilising as they advance to high-income levels. This macroeconomic trend reflects household-level dynamics, where an expanding middle-income population drives vehicle ownership. However, the correlation between vehicle ownership and middle-class expansion is not unconditional. In developing countries, weak public transport infrastructure, last-mile connectivity issues, and high commute times often make private vehicle ownership a necessity rather than a purely discretionary economic choice.
Figure 1: Car Ownership per 1,000 people vs. Gross Domestic Product (GDP) per capita across G20 nations
Source: World Population Review and International Monetary Fund (IMF)
Between 2012 and 2022, registered motor vehicle ownership in India grew at a compound annual growth rate (CAGR) of 8.3 percent, despite disruptions from the pandemic. Over the same period, the GDP growth remained around 5.5 percent, reinforcing the premise of income-elastic car ownership. While wealthier households contribute to this trend by purchasing multiple vehicles, the 8.6 percent CAGR for two-wheelers suggests significant participation from lower-income groups. Given the relatively small proportion of wealthy individuals with more than one vehicle in developing nations, their additional purchases can be considered marginal in overall calculations.
Examining vehicle ownership trends reveals important insights into economic mobility. Over the past decade, car ownership in the middle three income quintiles has increased by 2.2 to 2.8 times—compared to just 1.5 times in the highest quintile. Two-wheeler ownership has surged even more sharply: more than ninefold in the bottom quintile, more than doubled for the middle class, and grown only 1.4 times for the wealthiest segment. These disparities indicate a structural shift with middle-class households moving upward economically—evident in their ability to meet aspirations through rising income and employment.
Nevertheless, car ownership alone does not encompass the complete reality of middle-class growth. Many upwardly mobile individuals may still choose public transportation due to convenience, cost considerations, or policy incentives. Additionally, factors such as uneven access to credit and regional economic variations affect who can afford vehicles and who cannot. For instance, rural ownership of two- and four-wheelers continues to lag behind urban areas.
Figure 2: Car and two-wheeler ownership across income classes
Source: Data for India
If vehicle ownership does serve as a proxy for middle-class status, then this segment has expanded. In the two years following the pandemic, passenger vehicle sales increased by 40 percent, while two-wheeler sales rose by 32 percent. Two distinct trends are visible: an influx into the middle class marked by two-wheeler purchases, and upward mobility within the middle class reflected by four-wheeler acquisitions. Figure 2 shows that two-wheeler ownership growth has outpaced car ownership, suggesting that new entrants into the middle class are growing faster than transitions to higher middle-income status—a trend observed globally and often linked to the challenge of middle-income traps.
Additionally, preferences among four-wheeler buyers have shifted toward premium vehicles. Over the past four years, the market share of Sports Utility Vehicles (SUVs) has doubled, now making up more than half of total sales. This shift reflects rising disposable incomes and greater access to credit. Since January 2019, vehicle loans from scheduled commercial banks have more than doubled, indicating growing consumer confidence. Even with post-pandemic interest rates making financing costlier, the continued surge in auto loans indicates an optimistic outlook among middle-class buyers regarding their future financial stability. The Indian middle class is not only expanding but also growing wealthier and more confident in its economic prospects.
Even with post-pandemic interest rates making financing costlier, the continued surge in auto loans indicates an optimistic outlook among middle-class buyers regarding their future financial stability.
However, attributing rising vehicle ownership solely to income mobility requires further scrutiny. While increased affordability is a factor, easier credit availability, evolving consumer preferences, and marketing strategies of automobile firms also influence purchasing patterns. Thus, while vehicle ownership trends offer valuable insights, they should be considered alongside other socioeconomic indicators. The Car Index is a helpful proxy, but it should not be treated as a policy parameter.
Despite its post-pandemic progress reflected in the Car Index, India still lags behind developed nations in per capita car ownership. Among G20 nations, India ranks the lowest in cars per capita— though it has relatively higher two-wheeler ownership. This disparity arises due to two key factors. First, the high relative cost of cars suggests India is still in the early stages of structural transformation. Second, beyond affordability, practical concerns drive consumer choices. Traffic congestion and long commute times discourage car usage, making two-wheelers a convenient and efficient option. Addressing these issues requires long-term infrastructural and policy interventions.
Enhancing access to automobile financing in rural India could lower the relative cost of four-wheelers and increase penetration into the car market.
Promoting Electric Vehicles (EVs) could help mitigate fuel cost concerns. This must be augmented with the expansion of charging infrastructure, incentives for domestic manufacturing, and integration with India's broader environmental and urban mobility plans. Enhancing access to automobile financing in rural India could lower the relative cost of four-wheelers and increase penetration into the car market. Sustained development of national highways and road infrastructure will also be key in making private vehicle ownership a much more practical and viable alternative.
As India grows, with a rising working-age population, purchasing power is substantially rising among these classes, coinciding with aspirations of vehicle ownership in this category. This directly feeds into the high numbers of vehicle purchases, indicating a steady upward trend in growth, backed by aspirations and confidence. However, it is important to recognise that vehicle sales should not be viewed as an end in themselves. Instead, real and inclusive economic growth should be the means and the ultimate objective.
Arya Roy Bardhan is a Research Assistant at the Centre for New Economic Diplomacy, Observer Research Foundation
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Arya Roy Bardhan is a Research Assistant at the Centre for New Economic Diplomacy, Observer Research Foundation. His research interests lie in the fields of ...
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