India's car sales decline for the first time in a decade

The annual car sales in India has dipped for the first time in a decade, underlining the impact of a slowdown in its economy. In the 12 months to 31 March, sales dipped by 6.7% from the previous year, according to the Society of Indian Automobile Manufacturers (SIAM).

It compares with SIAM's initial forecast of a 10-12 % jump in sales. The industry body said a downturn in the economy and high interest rates have been the key factors behind the decline. “These figures have disappointed all our earlier forecasts and there has been a reversal in buying behaviour,” said Sugato Sen, Deputy Director General of SIAM.

SIAM said the total car sales for the period were 1.89 million, compared to 2.03 million an year earlier. Analysts and key industry players said that sales were likely to remain subdued until borrowing costs had been brought down and the economy starts to pick up pace again.

“In the absence of any positive stimulus and sentiments, we foresee the pressure on volumes to continue until there is a significant improvement in macroeconomic factors,” said Rakesh Srivastava, Senior Vice President of Hyundai Motor's India unit.

Just a couple of years ago, India was one of the fastest growing car markets in the world, seeing an annual sales increase by as much as 30%. At that time, many analysts predicted car sales in India were on track to hit the 9 million mark by 2020.

However, things have changed dramatically since then.

Between March 2010 and October 2011, India's Central Bank, the Reserve Bank of India (RBI), raised interest rates on 13 occasions.

Though the bank had announced three rate cuts since then, the cost of borrowing still remains high, with the RBI's key rate currently at 7.75%. At the same time, India's economic growth had also slowed sharply, denting consumer sentiment and demand.

The economy is now forecast to have grown by 5% in the year to March 31, 2013, the slowest pace in a decade.

Given all these factors, the industry now thinks it is unlikely that car sales in India would meet earlier longer term projections.

“I don't think those goals are going to happen in that time frame,” said RC Bhargava, Chairman of Maruti Suzuki, India's number one car maker.

AFP