The land of the world’s cheapest car is now offering vehicle rentals at less than $1 an hour.

At least three companies modeled after Zipcar Inc. have set up in India in the past two years. Hourly rates at Zoomcar India Pvt., a car-sharing service founded by two Americans, start from 45 rupees (73 U.S. cents) for the electric Mahindra Reva e2o hatchback.

The concept is gaining popularity with young people in India who are joining the workforce and want to avoid the costs and hassle of owning a car, yet find themselves poorly served by public transportation. Investors including Sequoia Capital and former U.S. Treasury Secretary Larry Summers are backing the car-sharing startups to target the country’s estimated 217 million city dwellers under the age of 30.

“In the next two to three years, demand for such services will explode, at least in the metros,” said Abdul Majeed, a partner at PricewaterhouseCoopers LLP in Chennai. “A lot of people don’t want to invest in cars with traffic congestion and cost of ownership rising, and with poor public transport in most cities, car sharing is bound to take off.”

Car-sharing services such as Zipcar and ride-booking service Uber Technologies Inc. have attracted consumers in the U.S. and Europe with easy-to-use smartphone applications. Investors are counting on the same model to work in India, the fastest-growing market for smartphones in Asia.

Shrinidhi Hande, 31, who works as a business analyst in the southern city of Chennai, rides a motorcycle during the week. On weekends, he turns to Zoomcar or Myles, a unit of New Delhi- based Carzonrent India Pvt.

‘Total Waste’

“Buying a car is a total waste of money,” Hande said in a telephone interview. “Using services such as Myles or Zoomcar, I get to drive the latest models without having to pay monthly installments, insurance or maintenance.”

To target customers such as Hande, Greg Moran and David Back started Zoomcar, based in Bengaluru, backed by investors including Summers, with seven cars in February 2013. Today, the service has a fleet of 300 cars in Bengaluru and Pune, near Mumbai, and plans to add another 200 vehicles by the year-end, according to Moran.

Last month, Zoomcar raised $8 million in funding led by Sequoia Capital, the Menlo Park, California-based venture capital firm that was an early backer of Google Inc. Zoomcar raised $3 million in an earlier round of financing.

Working Model

“The problem was that there were small-time operators, mom-and-pop type shops that didn’t have the technology and the right product,” said Moran, who along with Back graduated from the University of Pennsylvania in 2007. “Each month we’ve had more demand than the previous month, so it’s a model that’s working.”

Car rental company Carzonrent, which counts WestBridge Capital Partners among its investors, started Myles with 14 cars in three cities last year. It now has 600 cars in 16 cities, according to Sakshi Vij, the company’s head of strategy.

Another company, MiCar Sharing Technologies Pvt., begun in June by Suyagya Agrawal with bank loans and money from his father. The service has 50 cars in five locations in and around New Delhi and is in talks to raise more money to fund expansion, Agrawal said.

The sharing services have to compete with Uber, which started in Bengaluru in August 2013. It now operates in ten other cities, making India its biggest market after the U.S. On Nov. 20, it started a service using very small, air-conditioned cars under the brand UberGO, promoted as an alternative to India’s ubiquitous non air-conditioned taxis. The fares start as low as 7 rupees a kilometer.

Monitoring India

Zipcar, which was acquired by Avis Budget Group Inc. in 2013 and operates in six countries with more than 10,000 vehicles, is monitoring the market and doesn’t immediately have any plans to enter India, according to spokeswoman Jennifer Mathews.

To gain success in India, car-sharing companies have to challenge the traditional practice of hiring rental vehicles with chauffeurs.

They also have to overcome the view of car ownership as a status symbol and concern over the state of maintenance for the vehicles, according to Wilfried Aulbur, the managing partner for Roland Berger Strategy Consultants in India.

“If those two issues can sort themselves out, car sharing could pick up in the big cities,” said Aulbur.

The startups are offering rock-bottom prices to overcome consumer misgivings.

Zoomcar offers Ford Motor Co.’s Figo hatchback from 70 rupees an hour. Myles hires out Tata Motors Ltd.’s Nano Twist, a variant of the world’s cheapest car, at 99 rupees an hour. MiCar charges 85 rupees an hour for Volkswagen AG’s Polo hatchback.

Swankier rides are also available. The most expensive offering, a Mercedes-Benz E Class, can be hired for 1,200 rupees per hour — that’s $19 — from Myles.

“A self-drive car comes at a third of the cost of a chauffeur-driven car,” said Vij of Carzonrent. “This product is the future.”

–With assistance from Adi Narayan in Mumbai.

To contact the reporter on this story: Siddharth Philip in Mumbai at To contact the editors responsible for this story: Chua Kong Ho at Subramaniam Sharma

Photo Credit: Zoomcar offers Ford Motor Co.’s Figo hatchback from 70 rupees an hour. Pictured is a Zoomcar vehicle in India. Zoomcar