The trends come in the backdrop of an intensifying tussle between carmakers over policy support for small cars under upcoming emission norms.

In October-November, data released on Friday by the Society of Indian Automobile Manufacturers (Siam) showed that mini cars cumulatively grew just 3% year-on-year (y-o-y) to 22,415 units, compared to 17% (to 207,180 units) for compact SUVs of less than 4 metre length.

To be sure, both numbers reversed declines seen in the first six months of the fiscal year (April-September), when small cars fell 34% and compact SUVs fell 6% y-o-y.

The overall passenger vehicles (cars + SUVs) market, too, grew 17% to 754,574 units in October-November.

Notably, on 3 September, Union finance minister Nirmala Sitharaman announced a slew of cuts in goods and services tax (GST) across multiple products. The cuts on cars saw GST shrink from 28% to 18% for cars of length less than 4 metre, covering both compact SUVs as well as small or mini cars.

The cuts were welcomed as a boost by India's biggest small-car maker, Maruti Suzuki, with its chairman R.C. Bhargava suggesting that carmakers may even revise their product plans to include more small cars in their portfolio.

However, the trend has not played out as hoped, despite small carmakers announcing price cuts and festive offers in the range of ₹1.4-1.5 lakh on different models.

The emission conflict

The muted response has sharpened the stakes of an already contentious debate over how small cars should be treated under upcoming emission norms.

The draft corporate average fuel efficiency III (CAFE III) norms released on 25 September has provisions to allow extra benefits for cars weighing less than 909 kg in calculation of fleet emissions—all small cars have kerb weight less than 909 kg.

While the government has proposed a 3 gm relief for such cars in the final emission calculation, Maruti Suzuki, which is arguing that special relief is needed to save the small car segment, has pitched for more.

On the other hand, manufacturers like Tata Motors, Hyundai Motor India and Mahindra & Mahindra (M&M) say the government should stick to the existing definition of less than 4 metre length for defining small cars, and not introduce special weight-based relief.

"Many people were spreading a wrong narrative that the small car is not being purchased as entry customers are directly buying expensive SUVs and so the segment didn't need any support," Rahul Bharti, senior executive officer-corporate affairs at Maruti Suzuki, said during a media briefing on 1 December.

"Today, 3% of India's population owns a car. We are happy that this 3% is buying more cars and more premium cars. But it is also our responsibility to enable people from the 97% club to experience the joy of mobility and come into the car ownership club," he said.

The executive also warned that "unscientific targets" in upcoming emission norms for small cars can force the company to discontinue them.

A key plank of Tata Motors argument is the fact that the regulatory norms need to take into account the demand patterns prevalent in the market and the current policy framework already defines what is a small car.

Shailesh Chandra, managing director and chief executive officer at Tata Motors PV, said during a post earnings media call on 14 November that market trends indicate that in the sub-4-metre space, consumers are shifting towards compact SUVs. "This shift reflects evolving customer aspirations, buyers are clearly preferring safer, feature-rich vehicles," Chandra said.

In an interview with Mint earlier, Hyundai Motor India chief operating officer Tarun Garg also highlighted that consumer aspirations have shifted decisively towards wanting bigger compact SUVs than small hatchback cars.

"We have been maintaining right from the time GST came in that it will be the SUVs which will be the gainers and that is what has happened," Garg said.

Requests for additional comments on the issue did not elicit a response from Maruti Suzuki, Tata Motors, Hyundai, Renault, and M&M.

Not over yet for small cars

Analysts suggest that while mini cars have struggled owing to an image problem of not being seen as aspirational, they believe the trend may reverse early next fiscal.

Puneet Gupta, director at market analytics firm S&P Global Mobility, explained that industry growth will unfold in phases, with the current momentum driven largely by buyers who were already active in the market. These consumers have now upgraded, gravitating decisively toward sub-compact and compact SUVs.

"From April-May next year, however, entry-level and mini cars could witness a revival—provided consumers see meaningful prices associated with the segment. The comeback of this segment will hinge on the intensity of OEM commitment to reignite demand," Gupta said, adding that Maruti Suzuki will play a decisive role in this shift.

The extent to which the segment is revived will depend on whether the company views upcoming CAFE III norms as overly stringent for small cars.

"If compliance costs are seen as prohibitive, investment and energy behind reviving mini cars are likely to remain muted," he added.