Annual car sales in India are likely to drop for the first time since 2002 in the fiscal year ending March after January sales fell short of expectations, an industry body said.

Car sales, which grew 30 per cent in the year ending March 2011, posted their first monthly fall in three years last July as high financing and running costs deterred buyers.

"The car industry is too sensitive to interest rates, and we don't see interest rates coming down quickly," Vishnu Mathur, director general of the Society of Indian Automobile Manufacturers (SIAM), told reporters on Wednesday.

"Unless sales grow in February-March at 10 to 12 per cent, which is unlikely, the industry will miss the sales projection," he said, referring to its forecast for zero to 2 per cent growth.

Indian car sales have risen every year since the fiscal year that ended in March 2002, according to SIAM data.

Car sales rose 7.2 per cent in January from a year earlier, the third consecutive monthly rise, but less than required for automakers to make up for record sales falls in late 2011.

Sales rose in November and December, offering encouragement to an industry that had experienced four consecutive months of falling sales.

SIAM expects vehicle sales to increase by 11 to 13 per cent in the fiscal year starting on April 1 if the Reserve Bank of India begins to ease interest rates soon. The central bank has raised interest rates 13 times since March 2010 in its battle against stubborn inflation.

"The market has factored in falling sales this year, given how much sentiment has been subdued by high interest rates," said Nikhil Deshpande, auto analyst at PINC Research in Mumbai.

"You won't see substantial growth until rates start coming down, not before March or April, and people begin to get used to the higher petrol prices," Deshpande added.

Tepid January Growth

Automakers sold 196,013 cars last month, SIAM said. Total car sales for the fiscal year to January stood at 1.57 million, down 1.19 per cent from the period a year earlier.

Indian car sales are mainly driven by a rapidly expanding middle class that is typically reliant on loans for purchases.

Many companies have offered large discounts in recent months as well as trade-in deals for motorcycles -- a family vehicle in India -- to tempt first-time buyers.

India's once-soaring sales growth has spurred a slew of global carmakers such as Ford Motor Co and General Motors Co to ramp up their operations in Asia's third-largest economy in search of growth.

A large, young population, low penetration and rising incomes are seen driving long-term car demand in India, and industry executives last month said that the current sales slowdown was a temporary phase.

Market leader Maruti Suzuki, whose sales fell by a record amount in October due to crippling strikes, said sales rose 5.2 per cent in January, its first monthly rise since May.

Maruti, 54.2 per cent owned by Japan's Suzuki Motor, expects its sales to be 11 per cent lower in the current fiscal year, and last month reported a 64 per cent fall in profit for the December quarter, on a 17.4 per cent slide in sales.

Motorcycle sales, which have remained strong over the past year, rose 10.51 per cent to 825,887 last month. The increase is less than SIAM's growth rate forecast of 13 to 15 per cent for the current fiscal year.

Sales of trucks and buses, a key economic indicator, rose 13.5 per cent in January to 69,859.

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