The government's promise to review the tax structure for automobiles industry notwithstanding, the Centre for Monitoring Indian Economy on Monday downgraded overall car sales growth projection from the earlier 14 per cent to 7 per cent.
"There has been an across-the-board slowdown in car sales during the first four months of 2005-06. We expect a marginal pick up in demand in the second half, but it may not be as high as we had anticipated earlier. We now believe that car sales will grow by about 7 per cent during the year," CMIE said in its latest report.
The report pointed out that cumulative growth up to July was 4.9 per cent compared to 21 per cent last year.
CMIE said the compact and mid-sized cars, which account for about 80 per cent of total cars sold domestically, witnessed substantial slowdown during the current fiscal.
While the compact cars grew by 12.2 per cent in April-July 2005 as against 38 per cent in the corresponding period last year, mid-size cars sales slowed down to 13.9 per cent compared to 30.6 per cent growth during April-July 2004, it said.
The report said even demand for the price inelastic executive and premium categories was also impacted with the the respective categories registering negative growth of 24.10 per cent and 5.95 per cent in April-July 2005 as compared to the same period last year.
The CMIE monthly report said the government's assurance that it would soon review the taxation structure for the automobile sector, with special emphasis on small cars spelled "good news for auto companies as well as consumers".
The proposed restructuring for tax structure is with a view to provide an incentive to potential foreign companies who intend to make India their global manufacturing hub for small cars, besides the existing small car producers, the report said.
"Maruti Udyog will be the biggest beneficiary if excise duty on (small) cars is reduced. This would provide the much needed fillip to enhance its market presence," the report said, adding Hyundai and Tata Motors would also benefit from the move.
While sounding not so bullish on the prospects of the auto sector in the short-term, CMIE said the long-term prospects were very bright.
"Although the short-term prospects of the car market may not seem very bright, the long term prospects are positive. India is becoming an increasingly important market for foreign auto companies," it said.
On the sales of multi utility vehicles, CMIE said although "the decline in July 2005 seems to be a blip, growth in the coming months are likely to be below our expectations".
CMIE has thus revised its forecast for the growth of MUV sales to 11 per cent in the year instead of 15 per cent estimated earlier.
Domestic MUV sales in July was down marginally by 0.7 per cent after buoyant sales growth of 12-23 per cent recorded in the first quarter of 2005-06, while the cumulative sales was up by 13.3 per cent, it said.