Sales of passenger cars in India have begun picking up, overcoming a downturn in recent months. Global automakers say their plans for expansion in India will stay on track.
The month of February brought good news for the automobile sector as car sales jumped 22 percent, reversing four months of declining sales.
Auto analysts say a combination of factors helped turn the tide. Easing of bank credit made loans cheaper. Recent tax cuts helped drive down car prices. Several automakers introduced new models. And a pay hike announced by the government for its employees with retrospective effect put money in the hands of many people.
The Director General of the Society of Indian Automobile Manufacturers, Dilip Chenoy, hopes the positive trend will drive a recovery in the auto sector.
"The challenge is to keep up the tempo and to continue these policies that have been placed in terms of credit flows being increased to customers and interest rates being maintained at around the ten per cent level," Chenoy said. "If that happens, we don't see car sales going into negative territory."
It is not just domestic sales that jumped. Exports also increased by more than 18 per cent as demand increased for compact, fuel efficient cars in several countries. These cheap cars, for which India has become a production hub, are becoming popular as the world grapples with a recession.
In fact most global automakers have signaled that they are going ahead with plans to open new factories in India at a time when many of them are facing a serious slump in their home countries.
Last month Mercedes Benz opened an assembly plant near the Western city of Pune. The Indian unit of General Motors has also announced that it will go ahead with plans to invest more than $200 million to start its first car transmission and engine factory despite the financial problems faced by its parent company in the United States.
The car sector could get a further boost later this month when Tata Motors launches its much-awaited Nano car. The automobile, priced at about $2,000, has been billed as the world's cheapest car.
However, concerns remain. Sales of commercial vehicles have dropped sharply by 50 percent as both the economy and industrial production decline. Auto analysts say there is unlikely to be a recovery in this segment until economic growth picks up.