Author: Aaron Chaze

DECLINING SALES HIT INDIAN AUTO INDUSTRY

By Aaron Chaze

The Society of Indian Automobile Manufacturers (SIAM) has significantly lowered the growth forecast for car sales in the domestic market for fiscal 2012 from between 10% and 12% to between 2% and 4%.

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Industrial production slows

In September, domestic car sales dropped by 1.8% year-on-year. It was the third consecutive month in which auto sales recorded a decline. Sales fell in July by 15.6% and in August by 10.9%. The new sales forecast for 2012 is in sharp contrast with the growth recorded in 2011, when the industry grew by 30% to 1.98 million vehicles. Sales in the current fiscal year have been crimped by rising interest rates.

The Indian central bank has raised interest rates 12 times since March 2010, with benchmark rates rising 350 basis points during this period to 8.25%.

Almost on cue and in tandem with the slowdown in industrial production, excise duties levied on domestic production—considered a barometer for the state of industrial production in the country—fell in September by 8% year–on-year.

However, despite the drop in excise duty collections, overall indirect tax collections increased by 6% for September, driven by a 31% increase in service tax revenue and 7.2% increase in customs duties—which largely reflects the depreciation of the rupee versus the US dollar.

Foreign institutional investors pulled out $4 billion from Indian equities during the first 9 months of 2011 on the back of higher inflation, big interest rate hikes, and corporate earnings downgrades. The Indian stock market’s NIFTY Index is down 18.4% for the year through September 30.