Japanese IMO are slow to adapt to the changing economic dynamics. Both Honda, Toyota had a classical line up with a sedan, executive sedan an SUV. Honda had City, Civic, Accord and CrV as SUV. Toyota had similar line up with Corolla, Camry, Fortuner. But in the last decade with the expanding middle class many sub- sections of the categories opened up. The compact SUV category created by Renault Duster, expanded by Ford Ecosport and finally dominated by Maruti Brezza, Hyundai Creta. Then another category opened below compact SUVs called sub compact segment and while other brands filled up the space Honda, Toyota remained out of it.
Then their Executive sedans were so costly that they touched price with the German luxury brands so consumers preferred the luxe brands than a costly Japanese.
Further, both did not have any Hatchbacks in India market so remained out of a major chunk of market while Suzuki and Hyundai built their revenues on it. Honda s Jazz was in our of shape and came out later.
Toyota launched cheaper options like Etios, Liva, Yaris but it was too late by then so, they have decided to build only SUV, MPVs and Honda has also reduced it's portfolio to core products City, Amaze.