The Indian car rental market was valued at USD 2.9 billion in the current year and is expected to reach USD 3.8 billion by 2028, projecting a compound annual growth rate (CAGR) of 5.5% during the forecast period (2023-2028) according to Mordor Intelligence Report. This growth is driven by several factors, including increasing urbanization, the growth of the millennial population, improved mobility infrastructure, and a rise in tourism.
Urbanization and Population Dynamics
Urbanization is a significant driver of the car rental market. As of 2022, 36% of India’s population lived in urban areas, up from 34% in 2018. This shift results in greater demand for personal mobility solutions, making car rentals an attractive and financially feasible option. Furthermore, India’s millennial population, which makes up 34% of the total population, is expected to contribute 50% by 2030. This demographic prefers car rentals over owning vehicles due to the high costs associated with vehicle ownership.
Infrastructure Improvements
The Indian government’s investment in road connectivity also propels the car rental market. The total length of national highways in the country increased by about 59% over the past nine years, from 91,287 km in 2013-14 to 145,240 km in 2022-23. This enhanced infrastructure facilitates better inter-city and inter-state travel, boosting the demand for car rentals.
Challenges and Technological Advancements
Despite its growth, the car rental market in India faces challenges, particularly in expanding into Tier 2 and Tier 3 cities and rural areas. The market remains clustered around major urban centers like Bangalore, Hyderabad, Delhi, and Mumbai. However, advancements in technology and the introduction of value-added services like vehicle pickup and drop-off are expected to drive future growth. For instance, IndusGo, a self-drive rental company, received a significant funding boost to expand its fleet, reflecting the increasing demand for such services.
Tourism and Government Initiatives
Tourism plays a crucial role in the car rental market’s growth. Government efforts to boost the tourism sector and a surge in international arrivals significantly contribute to market expansion. For example, international arrivals in India saw a remarkable year-on-year growth of 305.4% between 2021 and 2022, and foreign tourist arrivals in April 2023 increased by 53.71% compared to April 2022.
Government initiatives aim to position India as a top tourist destination globally. In August 2023, the Ministry of Industry and Commerce promoted collaboration between India and Latin American and Caribbean countries to enhance tourism. Additionally, the Union Government’s 2023 budget allocated significant funds for tourism infrastructure and promotion.
Increasing Online Car Rental Services
The rise in internet and smartphone penetration rates in India has led to a surge in online car rental bookings. The internet penetration rate was 48.7% in 2022, while smartphone penetration reached 70.95% by June 2023. Online car rental services offer convenience, allowing customers to book cars without visiting physical locations. Moreover, these services provide various information, such as vehicle conditions, rates, and cashless transactions, enhancing the user experience.
Companies in the ecosystem are continuously improving their online booking platforms. For instance, IndusGo launched an upgraded mobile app, “IndusGo 2.0,” to streamline the booking process. Similarly, TravelLocal offers online car rental and cab services across 99 cities in India, allowing customers to book rentals easily.
Competitive Landscape
The car rental market in India is moderately fragmented and competitive, with both local and nationwide companies operating across the country. Major players include Zoom Car, Revv, Drivezy, MyChoize, Myles, Vroom Drive, Avis, Eco Rent a Car, and Ola. These companies focus on extending services to corporate clients, enhancing their offerings to gain a competitive edge. They compete on various parameters, such as price, assistance and maintenance services, insurance options, and business presence across India.
Strategic Initiatives
Companies in the car rental market are engaging in partnerships and rebranding strategies to enhance their market presence. For instance, MyChoize completed a rebranding initiative to upgrade customer experience, and Orix expanded its fleet to meet growing demand. Zoomcar partnered with Statiq to promote EV-based travel, and Avis India offered discounts to Vistara customers as part of a summer offer.
The Indian car rental market is on a robust growth trajectory, with a projected CAGR of 5.5% over the next five years. The market’s expansion is fueled by urbanization, millennial preferences, infrastructure improvements, and tourism. Technological advancements and the rise of online booking platforms further enhance market prospects. Despite challenges in reaching Tier 2 and Tier 3 cities, strategic initiatives by companies and supportive government policies are set to drive the market forward, making car rentals an increasingly popular choice for personal mobility in India.
