Double-Digit Gain in May Belies India Sales Cooldown

MUMBAI – India light-vehicle sales rose 10.7% in May compared with year-ago, to 262,983 units, according to WardsAuto data, but acted as a drag on the 14.6% year-to-date growth rate.

New-car deliveries edged up just 3.7% to 164,629 units, lifted by Honda Siel’s 347.8% spike to 10,313. But volume-leader Maruti Suzuki saw sales drop 5.9% to 72,309, and second-place Hyundai deliveries rose a mere 3.0% to 31,939.

Light-commercial-vehicle sales advanced 24.8% to 98,354 units, with volume-leader Mahindra & Mahindra enjoying a 31.9% improvement to 33,465. Tata ranked second with 30,306 deliveries for a 21.5% gain.

Vishnu Mathur, director general of the Society of Indian Automobile Manufacturers (SIAM), says sales could continue slowing this year if taxes are raised and interest rates remain high.

Diesel-powered vehicles shored up the Indian market with a 55% share in May, up from 38% a year earlier. To meet increased diesel demand, auto makers have altered their mix of diesel- and gasoline-engine production.

Ford India has invested $72 million to increase diesel production by 80,000 units a year. Hyundai has doubled diesel output, and Maruti Suzuki has doubled its order of diesels from Fiat India to 200,000.

Diesels offer 20% better fuel efficiency than gasoline-powered engines. And under a complex pricing system of subsidies, incentives and taxes, diesel costs 74% less than gasoline compared with 25% year-ago.

The government subsidies are meant primarily to benefit farmers with diesel-powered water pumps and transporters of people and parcels, such as taxi drivers. Diesel also is used to power generators in office buildings and retail areas.

Cars use only 2% of the fuel, but many of them are luxury and super-luxury models that run exclusively on diesel. That has led to a widespread perception among policymakers that the subsidies are benefiting the wealthy.

A government-appointed committee two years ago recommended an additional excise duty of Rs80,000 ($1,430) on diesel cars. In a letter to the finance minister earlier this month, Petroleum Minister Jaipal Reddy asked for a special additional duty of Rs170,000 ($3,035) on small diesels and Rs225,000 ($4,020) on medium and large models.

SIAM opposes higher duties on diesels, saying they would “slow down auto sales even further, and the revenue benefit to the government would be only nominal.” The industry group suggests pricing diesel at its true cost, but the government is hesitant to allow higher prices for diesel used for purposes other than running cars.

“We cannot decontrol diesel at full swing at this point of time, because the price jump will be very large,” says Kaushik Basu, chief economic advisor to the Finance Ministry. But “intelligent decontrol” done gradually and sector by sector is possible, he notes.