Rising income, expanding product lines and affordable repayment options have fuelled India’s appetite for luxury cars, pushing the market 21 spots in just 10 years in world ranking.

India saw sales of close to 40,000 luxury cars last calendar year, marking a staggering 10-fold jump in just 10 years. According to research firm IHS Markit, India’s luxury car market was ranked 27th last year. It was in the 48th position in 2007.

No less than 100 luxury car models and dozens of their variants are on sale in India with prices ranging from Rs 25 lakh to Rs 10 crore. Mercedes-Benz, BMW, Audi, Jaguar Land Rover, Volvo, Porsche are the brands forming the luxury car market.

Last year, the segment’s growth broke a five year record with a rise of 16 percent. This growth has come despite the segment being in the highest tax bracket where such cars share space with sin goods such as tobacco, pan masala and aerated drinks. Luxury cars are presently taxed at 53 percent (28% GST + 25% Cess).

“Though high taxes to the tune of 50 percent is still a big hurdle in way of premium car makers, we are however seeing OEMs (original equipment manufacturers) gradually putting in every effort in terms of increasing their reach by expanding their dealer network and even assembling the cars locally in market for the Indian consumer”, said Puneet Gupta, associate director, IHS Markit.

Though India’s luxury car market is much smaller than other countries and even other emerging markets, what makes the Indian market a unique case is the fact that the country is one of the few in the world to boast of having assembly facilities of every luxury car manufacturer.

Each of the German giants – Mercedes-Benz, BMW and Audi – has an assembly plant in India. This has allowed companies to keep their products affordable by benefiting from lower taxes on assembled cars. They have invested more than Rs 3,000 crore in their assembly plants and at least 25 models are assembled from parts imported from their mother plants outside India.

Mercedes-Benz’s Chakan unit in Pune is the only plant outside Germany to make the Maybach sedan, whose price tag is more than Rs 2 crore. Both Mercedes-Benz and BMW source engines from Force Motors.

Toyota-controlled Lexus, which made a formal entry into India last year, is also exploring a local assembly operation. Swedish brand Volvo opened an assembly plant in Bengaluru last year where it assembles its flagship product - XC90.

“The year 2017 was a record year for Volvo Cars with a robust 28 percent growth. Even the luxury car segment witnessed an overall growth of about 15 percent but bear in mind the segment is still minuscule – less than 2 percent of the industry. We believe there is immense potential to grow in the years to come”, said a Volvo Cars spokesperson.

In comparison, China’s luxury car market is more than 10 percent of its total vehicle market. With much more head room for growth considering India will have more than 480,000 high net worth individuals (people with assets of more than $1 million) demand for luxury cars is headed north in the coming years.