Auto sale sharply drops in India

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Auto sale sharply drops in India

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New car sales in India fell 24 percent in October, its sharpest fall in more than a decade.

09 November,2011 04:38 pm

High interest rates and rising fuel prices hurt demand, an industry body said on Wednesday.The Society of Indian Automobile Manufacturers (SIAM) said sales fell to 138,521 vehicles last month, down from 181,704 vehicles a year earlier, the biggest decline since a collapse of 39.8 percent in December 2000.Car sales have been slowing in India for four straight months as high borrowing costs hit one of the worlds fastest-growing auto sectors, which has attracted interest from major global players.The weak data adds to gloom around the global economy and will hit hopes that emerging markets such as India can power growth as Europe and the United States struggle.Sharp interest rate and fuel price hikes have weakened demand, said Sugato Sen, senior director of SIAM, urging that negative sentiments affecting the sector will have to be tackled.Business leaders have repeatedly urged Indias central Reserve Bank of India to halt its cycle of 13 interest rate hikes since March 2010 -- the most aggressive tightening pace of any central bank globally -- saying it has hurt investment and growth.The country posted its slowest gross domestic product (GDP) growth in six quarters, up 7.7 percent year-on-year, for the April to June quarter.Credit growth from banks -- at 17 to 18 percent -- is still low and corporates are shy to make big ticket investments.Consumers have been reluctant to buy cars due to rising fuel costs, with state-run oil firms hiking prices four times this year to offset losses on sales due to a drop in the rupee against the dollar and high crude oil prices.Besides this, auto loans have become costlier due to interest rate hikes and prices of cars have risen on the back of steeper commodity prices.Production has also been hit by a long-running labour dispute at Maruti Suzuki, Indias biggest carmaker.Auto sales are viewed as a key indicator of short-term economic trends.The continuing decline in car sales reflects pressure on consumer confidence, said Siddhartha Sanyal, chief India economist with Barclays Capital.Indias central bank last month gave a strong signal that it may not hike rates again for the rest of the calendar year, but auto analysts say a revival for the sector could take time.Deepak Jain, auto analyst with Mumbai-based brokerage Sharekhan, expects demand to pick up early in 2012, by which time interest rates are expected to have peaked out.Indias inflation, at 9.72 percent, is the highest among major global economies.SIAM has already sharply cut its forecast for Indian car sales growth in the fiscal year to March 2012 to between two and four percent, down from an earlier projection of 10 to 12 percent.