India Car Sales Grow at Slowest Pace in 2 Years

However domestic car sales grew by 30% to 1.98 million units during the last fiscal year to March 2011.

As price hikes and costlier loans kept buyers out of showrooms, India's car sales in April grew at almost half of last year's April sales.

Domestic car sales -- viewed as a barometer of overall economic health -- rose by 13.2% to 162,825 units in April from the same month a year ago, the Society of Indian Automobile Manufacturers (SIAM) said. The growth was sharply down from a 24% year-on-year jump the previous month and SIAM said it marked the slowest pace of expansion since June 2009.

"Consumer confidence is low" because "all economic parameters are a bit wobbly", said Sugato Sen, a senior director at SIAM.

The muted numbers come as Finance Minister Pranab Mukherjee has warned economic growth may decelerate to around 8% from 8.6% last year -- undershooting an earlier government target of 9% -- due to aggressive interest rate increases to curb stubborn inflation.

The central bank has hiked rates nine times in 15 months, most recently last week by a heftier-than-expected 50 basis points, saying short-term economic growth may have to be sacrificed in the fight against inflation, running at 9%.

"Because of high interest rates and because of rising prices of vehicles, people are postponing purchases," said Sen. The central bank's monetary tightening has prompted commercial banks to hike car loan interest rates to as much as 14%. Some 70% of car purchases are financed through loans, making car sales sensitive to rates rises.

Domestic car sales grew by 30% to 1.98 million units during the last fiscal year to March 2011, the most in more than a decade, as an increasingly affluent middle class snapped up new models with the help of cheap loans.

But industry experts warn rises in costs of raw materials such as steel and rubber that have pushed up car prices, heftier loan rates and expectations of fuel price rises could put the brakes on a two-year high-speed run. "This could be a difficult quarter," SIAM's Sen said, adding he expected passenger car sales to increase an overall 14% to 16% this year.

More bearish commentators say car sales may rise by less than 10% with some companies reporting car inventories at two-year highs.

Sales of commercial vehicles such as trucks -- seen as another important clue to economic health -- jumped by just 8.2% to 53,202 units last month, the smallest percentage rise since September 2009, SIAM said.

The slowdown comes as global manufacturers such as Ford, Renault-Nissan, General Motors and other companies have been relying on India and neighboring emerging market giant China to help offset saturated markets in the West.

Copyright Agence France-Presse, 2011

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