Car sales in India is crawling towards sub 5% growth, to their slowest in a decade, as rising fuel prices and higher cost of loans continue to bite, Crisil said, indicating further demand slump in one of the world's fastest growing auto market.
The research firm said on Wednesday domestic car sales is now expected to eke out upto 3% growth for the fiscal year ending March 2012, sliding from an earlier forecast of 8-10%.
Crisil's latest estimate is in stark contrast to 2010/11, when domestic car sales grew at a breakneck speed of 30%.
Industry body Society of Indian Automobile Manufacturers (SIAM) expects sales to grow at 10-12% this year, but has indicated that estimate may be revised down.
"We have revised our forecasts downwards on account of a rise of Rs 3 in the petrol prices and a 25 basis points increase in interest rates. This would be only the second time in the decade when industry will grow at sub 5%," Crisil said in a note.
The Indian car market, which saw a 10% decline in sales in August, is driven by a burgeoning and aspirational middle class that relies on bank loans for such purchases.
But RBI has raised interest rates a dozen times in 18 months in an effort to battle near-double digit inflation, a move that has hurt credit-based purchases.
"While automobile financiers have not fully passed on the increased rates to end users, uncertainty regarding their decision to pass on the rate hikes, coupled with the burden of EMIs (equated monthly instalments) of other loans would impact demand for cars," Crisil said.
A timely resolution of an ongoing labour dispute and subsequent production loss at the country's biggest car maker Maruti Suzuki is critical for the industry's growth, Crisil noted.
If production remains constrained at Maruti, which accounts for roughly half the cars sold in India, industry growth will be "severely impacted," Crisil added.