India car sales shrink for first time in decade

India's once red-hot car market shrank for the first time in a decade in the last financial year, data showed Wednesday, underlining the scale of the slowdown in Asia's third-biggest economy.

Domestic passenger car sales, seen as a pointer to overall economic health, fell by 6.7 percent in the year to March 2013 from a year earlier to 1.89 million units, said the Society of Indian Automobile Manufacturers (SIAM).

Sales are expected to grow in the next 12 months but only by three-to-five percent, a far cry from the record 30-percent rise in 2010-11, SIAM said.

'The basic problem has been the big downturn in the economy and high interest rates,' SIAM deputy director general Sugato Sen told AFP.

March sales alone contracted 22.5 percent year-on-year, raising questions about large investments by foreign auto giants, which are building new plant capacity.

US giant Ford, for instance, has earmarked nearly $1 billion to build a plant in the western state of Gujarat that will have capacity to make 240,000 cars a year by 2014.

GM, Toyota Motor Corp and Maruti Suzuki have also been boosting capacity to meet what they hoped would be big growth in a market that could equal China's and would offset weakness in the developed world.

But India's top carmaker, Japanese-controlled Maruti, has been forced to temporarily shut some production to cut their ballooning inventories, while new investment is already slowing, analysts say.

The figures came as more bad news for the left-leaning government of Prime Minister Manmohan Singh which faces voters in national elections next year with the economy growing at its slowest pace in a decade.

Meanwhile, China's sales have moved back into the fast lane with total sales of passenger cars, sport-utility vehicles, multi-purpose vehicles and minivans up 15 percent in March, according to state media.

India's annual car sales performance was a sharp reversal from SIAM's 10-to-12 percent growth forecast at the outset of last year.

'These figures have disappointed all our earlier forecasts -- there has been a reversal in buying behaviour,' Sen said. The last time annual car sales shrank was in 2002-03 when sales contracted 7.7 percent.

Car buyers are being bombarded with 'buy now, pay later' interest-free repayments and double-digit discounts as sellers battle to perk up demand.

But consumers are being 'cautious, postponing purchases, hoping for much lower interest rates and for the general mood to improve', Fortune Equity Brokers analyst Mahantesh Sabarad told AFP.

The economy is estimated to have grown by five percent last year, hit by high interest rates that have slowed investment and demand and weak exports, and the Congress-led government expects around six percent growth this year.

Passenger vehicle sales of Suzuki Maruti rose 4.4 percent to 1.05 million units in the last financial year.

Many foreign carmakers had a bad year with passenger vehicle sales of Italy's Fiat sliding by 57 percent, Germany's Volkswagen India slipping by 16 percent, Ford declining by 17 percent and General Motors dropping by 20 percent

French carmaker Renault, which re-entered India's market just two years back, was a rare bright spot, selling 52,463 passenger vehicles, a rise of 1,331 percent, helped by the popularity of its wallet-friendly $14,300 Duster SUV.

'Ultimately, with this country's population size (of 1.2 billion people), incomes growing, the low penetration of vehicles in this country -- the future is very bright for the industry -- that is a given fact,' SIAM president S. Sandilya told a news conference.

SIAM says the number of cars per 1,000 people in India is just 12.