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Business trends

India passenger vehicle sales to gather pace after slowest growth in five years

Sales of cars, SUVs grew 2.7% during the last fiscal year

Weakening demand has prompted Maruti Suzuki India, the nation's biggest carmaker, to slash production in recent months.   © Reuters

MUMBAI (NewsRise) -- Passenger vehicle sales in India is likely to pick up pace in current fiscal year, after growing at the slowest pace in five years in the year ended March 31 amid an economic slowdown, the nation's main automobile industry group said Monday.

Automotive demand in India has been cooling since July as Asia's third-largest economy faced a credit crunch and distress in rural markets. The nation's gross domestic product growth eased to 6.6% in the three months through Dec. 31, its slowest pace in five quarters. Weakening demand has prompted Maruti Suzuki India, the nation's biggest carmaker, to slash production in recent months.

Credit has tightened partly because of the lending curbs imposed on banks in a bid to reduce their bad loans. However, the central bank's move last week to cut interest rates for the second time in three months is likely to infuse the much-needed liquidity into the system, boosting consumer demand.

According to the Society of Indian Automobile Manufacturers, or SIAM, sales of passenger vehicles is likely to grow 3% to 5% this fiscal year that began on April 1. Sales of cars, SUVs, and vans barely grew 2.7% to 3.38 million units last fiscal year.

Sales of passenger cars grew 2.1% to 2.22 million units last year, the SIAM data showed. SUVs recorded a 2.1% increase to 941,461 units last month. SIAM's automobile sales are counted as factory dispatches and not retail sales.

"The easing of monetary policy and two consecutive rate cuts will help consumers," Rajan Wadhera, president of SIAM, told reporters at a news conference in New Delhi. "The government has already committed a lot of money to spend on infrastructure development and rural growth, so we will see a cumulative impact of that this year."

Wadhera expects the demand before the transition to new Euro VI fuel technology in April 2020 to further boost demand.

Last week, Maruti Suzuki said it expects demand to pick up after India's general elections due later this month and the next amid hopes of consumer confidence rebounding. The Suzuki Motor unit's overall sales in the year ended March 31 barely grew 4.7%, forcing the company to cut production by 21%.

Nomura said it expects demand recovery to be back-ended in the second half of this fiscal year as economic growth recovers, election uncertainty goes behind, and pre-buying sets in as prices rise sharply ahead of a new regulatory change due in April 2020.

Further, a number of carmakers, including South Korea's Hyundai Motor and Mahindra and Mahindra are set to launch new models later this year that will boost demand, SIAM's Wadhera said.

Domestic sales of trucks and buses, considered a barometer of the economy's health, grew 18% to 1 million units last year. Sales of two-wheelers grew 4.9% to about 21.2 million units, the SIAM data showed. The industry body expects sales of two-wheelers to grow 5% to 7% this fiscal year.

--Shivangi Acharya and Dhanya Ann Thoppil

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