From farmers who swapped fields for cash to 20-something CEOs that inherited the family business, hot new money is flooding India’s luxury car market as roaring sportscar engines announce the country’s growing wealth on its roads.

No senior Indian executive feels complete without his sleek German-made saloon, while Italian sportscars are the new calling cards for the country’s rich young things at exclusive nightclubs that screen guests at the main gate, not at the door.

“There is a rush to luxury,” says Mohan Mariwala, Managing Director of Auto Hangar, surrounded by gleaming Mercedes Benz sportscars in one of his four Mumbai showrooms for luxury cars.

“Farmers, tiny industrial families, the younger generation with different value systems. You can’t imagine the kind of people who invest in extremely exotic cars today.” Headline growth in Asia’s third-largest economy may be stuttering, but decades of growth has spawned a new upper class with global tastes and aspirations that is driving a $1 billion luxury car market expanding at 40 per cent annually, say industry analysts and research firms.

Five years ago, Daimler AG’s Mercedes Benz was the only established luxury carmaker in India and sightings of sports cars on the dusty and poorly-maintained roads were rare.

Today, crowds gather along Mumbai’s famous seafront to catch a glimpse of supercar parades, while a Facebook group for luxury car sightings explodes with excited chatter over a blurry photo of an Aston Martin Rapide, a car that costs more than $300,600 in a country where more than 500 million people live on less than $1.25 a day.

“The new Indian luxury consumer is pursuing a lifestyle where owning exclusive items and owning them first is a clear sign of wealth and power,” Andrea Baldi, Southeast Asia and Pacific sales manager for Lamborghini, told Reuters.

Rising interest rates

Growth in overall car sales will likely be flat in the financial year that ends in March, India’s auto industry association has said, as mainstream firms struggle with faltering demand thanks to rising interest rates and higher prices.

Luxury automakers are rushing to set up shop. Britain’s Aston Martin, famously James Bond’s car of choice, and Fiat’s Italian brands Ferrari and Maserati all opened showrooms in India in 2011, joining established brands such as Volkswagen AG’s Audi and BMW. “India’s young population is affluent and dynamic, the environment is just right,” said Baldi. Lamborghini introduced its Aventador LP 700-4 in the country in November, priced at Rs 36.9 million. It has taken orders from India for more than 20 Aventadors and buyers must wait 18 months for delivery.

Jumping segments

Not long ago, a Honda Accord or Toyota Camry was considered a luxury car in India, where small, cheap cars predominate and the best-selling model is Maruti Suzuki's Alto, which starts at Rs 2,32,247.

“There is a distinctive shift happening. People are jumping segments, from a Honda Civic into a Mercedes Benz E-class,” said Mariwala, who sells around 100 Mercedes vehicles a month from his four Mumbai showrooms.

Haresh Punjabi, 46, who lives in Gurgaon, a booming modern suburb of Delhi, owns a Mercedes ML350 sport utility vehicle, a BMW 740 Li, and a Porsche 911 Carrera.

Punjabi, who exports home furnishings to the United States, said expensive cars have become commonplace in his neighbourhood. “If five years ago you bought a BMW or a Mercedes, people still looked at it. Today if you buy a BMW, Audi or Mercedes it's not as big a head-turner,” he said.

Spending on luxury cars in India grew 36 per cent in 2009-10 to $1 billion, according to a recently released report by AT Kearney, outstripping growth in jewellery, electronics and watches.

Demand for high-end cars goes beyond India’s biggest cities. While BMW sells 70 per cent of its cars in Delhi and Mumbai, most of the 36 new showrooms it plans over the next four years will be in smaller cities.

In 2010, the city of Aurangabad, deep in the heart of the western state of Maharashtra, made headlines when residents ordered almost 150 Mercedes-Benz cars.

India has around 2 million households with annual incomes of more than $36,000, a number set to swell to around 8-10 million households by 2015 if the country's economic growth stays on track, according to global research firm McKinsey & Co.

“The mindset of the luxury autos customer has shifted from being a discreet buyer who wants to stay under the radar to someone who is not shy of flaunting their wealth,” said Rajat Dhawan, a partner at McKinsey in India. “This trend will further accelerate...It is one of the biggest things you can have to flaunt that you have arrived.”

Potholes and taxes

BMW won India’s luxury sales race in the year to March 2011, selling 7,079 vehicles compared to 6,670 for Mercedes. Both are on track to meet targeted sales of 10,000 cars this fiscal year.

Despite its fast growth, India’s luxury car market lags far behind China, where Mercedes and BMW sold a combined 320,000 vehicles in the first nine months of 2011.

Taxes of up to 110 per cent levied by the government on imported luxury goods mean supercars bought in Mumbai are far more expensive than those bought in Monaco.

As demand increases, manufacturers can reduce levies to 40 per cent on models assembled domestically, a tactic already employed by BMW, Mercedes and Tata Motors, which owns the British luxury brands Jaguar and Land Rover.
Another speedbump is slowing economic growth.

Imported models

While analysts say luxury sales are likely to stay strong, dealerships say the recent monetary tightening by the central bank has eaten into demand as financing costs rise. A rupee that fell 16 per cent in 2011 makes imported models more costly.

Luxury carmakers and sellers also cite India’s crowded, pot-hole scarred roads and the lack of a robust highway network, where owners can flex their powerful engines, as drawbacks for the sector.

Punjabi said he mainly drives his Porsche early on weekend mornings in order to avoid traffic. In Mumbai, owners of high-performance cars use flat-bed trucks to carry their vehicles in order to avoid the bumps and scrapes that are common on the city's congested streets as they make their way to a nearby expressway where they hold invitation-only parades.