India car sales growth may slow due to higher price

India's car sales growth will probably slow by half this year as new emissions rules push up vehicle prices and interest rates increase.

Passenger car sales may gain about 12 percent in the year ending March 31, the Society of Indian Automobile Manufacturers said today. About 1.71 million units are likely to be sold this fiscal year, compared with 1.53 million a year earlier.

Maruti Suzuki India Ltd., India's biggest carmaker, and rivals raised vehicle prices to recover costs from complying with new emissions standards set for 13 cities starting in April this year. The slower sales will follow the fastest expansion in six years, Pawan Goenka, president of Mahindra & Mahindra Ltd.'s automotive division, said in New Delhi today.

"Anything that affects the equated monthly installment, whether it is price increases or interest rate increases will have an impact on demand," said Goenka, also president of the auto manufacturers group. "With the emission norm change, prices will go up, and we have always had concerns on interest rate increases."

Higher interest rates in India, the world's third-fastest- growing major economy, may hurt demand because 80 percent of customers borrow from banks to purchase vehicles. The nation's central bank raised key policy rates for the third time this year on July 2 to curb accelerating inflation.

Sales of passenger cars in India in the first five months of this year grew 31.6 percent from a year earlier, the second- fastest in the world after China, the industry group said.

That's encouraging global carmakers including Ford Motor Co., Toyota Motor Corp. and others to introduce new models, expand capacity or build new factories.