India car sales post steepest half-year drop in decade

Indian commuters wait during a traffic jam in New Delhi in Aug. 2013.

India's car sales fell nearly five percent year-on-year in the first half of the financial year due to the weak economy, the steepest drop in a decade, data showed Tuesday.

The figures from the Society of Indian Automobile Manufacturers (SIAM) indicated the once-booming sector is on track for a second year of declining sales.

"We'll be lucky if we start coming close to zero growth in passenger car sales," SIAM president Vikram Kirloskar told reporters.

September car sales grew 0.7 percent year-on-year to 156,018 units. But sales for the six months since April plunged by 4.67 percent, the sharpest drop since the first half of 2002-03 when sales shrank by 6.96 percent.

"Until we see good economic growth, people will be cautious and take fewer risks," Kirloskar said.

SIAM initially expected passenger car sales to grow by up to three percent this year to March 2014 but it has since said it expects negative growth.

Carmakers hope the religious festival season, swinging into high gear, may bring more buyers as it is seen as an auspicious time to purchase. They are ramping up special offers.

But analysts say even the festive season could produce disappointing results. Some analysts expect economic growth this year as low as 3.7 percent, down from five percent last year.

"Even if we have a good festive season I don't think the sector has bottomed out," Deepesh Rathore, director of Emerging Markets Automotive Advisors, told AFP.

"With the weak economy, high inflation and high interest rates, the car-buying customer does not think it's the right time to buy."

Car sales contracted for the first time in a decade last year, in contrast to previous years which posted annual growth of 20 to 30 percent.

Those boom years prompted foreign automakers to make a beeline for India as they sought to boost sales globally.

Underscoring overall economic weakness, sales of medium and heavy commercial vehicle slumped by 25 percent in the first half from a year earlier.

SIAM's Kirloskar estimated overcapacity in the passenger car and commercial vehicle sectors at as high as 30 percent.

India's rupee has tumbled this year against the dollar, a boost for car exporters, but the currency fall has piled extra costs on an industry depending on many imported raw materials.

Kirloskar said carmakers will likely press ahead with already announced investments but may hold back on new ones until the economy recovers.