Car makers foresee better sales as RBI slashes interest rates

Wednesday 18 April 2012, 11:57 AM by

Reserve Bank of India (RBI), the central bank of the country, has brought down interest rates on auto loans by 50 basis points. This move has been welcomed by the national automotive sector as the car manufacturers believe that this will allow more people to buy automobiles this year. In 2011, the industry suffered due to poor sales as the interest rates made the cars too expensive for the common man in a dwindling economy.

According to Shashank Srivastava, Chief General Manager - Marketing, Maruti Suzuki India Limited, "It’s a positive step as 70 percent of all retail sales in the sector happens through finance. However, how much will the cut help sales will depend upon how much of the RBI's cut translates into cheap and easy loans."

Industry majors believe that sales will rise at a faster pace now that the interest rates on loans have come down. P. Balendran, Vice President, General Motors, expected repo rate to come down since the inflation in India has come under control in recent times. On the reduction in interest on auto loans, he commented, "It's a welcome step and market should improve going forward. Volume of both petrol and diesel vehicles should pick up soon."

Despite the industry celebrating the slashed interest rates, industry body Society of Indian Automobile Manufacturers (SIAM) said that car sales may not increase as expected. According to it, the lower interest rates have been introduced just after the government announced a hike in taxes during the 2012 Union Budget. Vishnu Mathur, Director General, SIAM, stated, "It is a positive move, but we have to wait and watch what happens as the budget has hiked excise duty."

During the 2012 Union Budget, Finance Minister Pranab Mukherjee announced that the taxes on petrol and diesel cars that are more than 4000 mm in length and have engines smaller than 1200 cc and 1500 cc, respectively, will be increased from 22 to 24 per cent. According to SIAM, car sales will rise by 10-12 per cent in the current financial year due to improved macro-economic conditions. This rise in volumes will be over the 17,376,624 units that were sold in the previous fiscal in the country.

In the annual monetary policy for the year 2012-13, RBI has slashed a few key rates by 50 basis points in order to promote industrial growth and boost the economy. The auto index on the Bombay Stock Exchange (BSE) increased by 82.59 points and stood at 10,371.53 on April 17, 2012 due to the lowered interest rates. Along with auto loans, commercial and housing loans have also become cheaper in India.