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Industry group cuts India car sales forecast

MUMBAI, India -- Car sales in India may grow just 1 percent this fiscal year, down from a July forecast of around 10 percent as the economy falters, the Society of Indian Automobile Manufacturers said Wednesday.

Rising fuel prices, economic growth at "not encouraging" levels, inflation and still-high interest rates are hurting domestic demand more than expected, the industry group said.

Exports have also been hit, with a 6 percent fall in total vehicle exports from April through September.

Car sales for September slid 5.4 percent from a year earlier to 157,536 vehicles while commercial vehicle sales were flat at 70,683 vehicles. Sales of two-wheelers slid 13 percent to a little more than 1 million as economic weakness spread to the rural economy.

India's rural economy has been a bulwark of strong consumption amid global uncertainty. But the auto industry group said moderating agricultural growth is hurting commercial vehicle sales and weak rural demand has hit sales of motorcycles, which are favored by millions of Indians in villages who can't afford cars.

The group said the government's focus on rural development was undermined by the fact that much of the money is not reaching the intended beneficiaries.

Vehicle finance rates remain high. India's central bank has shied from rate cuts because of persistent inflation despite a tailspin in economic activity. Car loans carry interest rates of 11.4 percent to 15.3 percent, while commercial vehicle loans charge 14.7 percent to 19.3 percent in interest, SIAM said.

In its push to reduce the fiscal deficit, India has reduced fuel subsidies. That, plus rising prices, is pushing the cost of vehicle ownership up by 3 to 5 percent, the auto group said.

The International Monetary Fund on Tuesday slashed its growth forecast for India's economy to 4.9 percent from 6.1 percent.

New Delhi has belatedly pushed through measures intended to stoke growth and reassure investors, including opening retailing and airlines to greater foreign investment.

Standard and Poor's said Wednesday that India still faces a one in three chance of a sovereign credit downgrade in the next 24 months, despite the flurry of reform.