Government may intervene to support auto industry, says minister

05 September 2007

Mumbai: The government is keenly watching the performance of the country''s automobile industry and may intervene to sustain growth, Santosh Mohan Dev, minister of heavy industries and public enterprises, told an industry conference.

He said the sector''s performance in the first four months of the fiscal year that began in April fell short of expectations.

The government will take steps to boost auto sales in the world''s second-fastest growing major economy after higher interest rates crimped demand this year and forced Tata Motors Ltd. and Hero Honda Motors Ltd. to cut output, Dev said without saying what measures would be taken.

Five-year high interest rates have slowed the demand for cars and sports utility vehicles in India, as most vehicles are bought on credit. That''s prompted companies to delay opening new factories and cut production.

Car sales in April, May and June grew at 11.3 per cent, 9.1 per cent and 16.4 per cent down from 16.6 per cent, 29.7 per cent and 25.3 per cent in the same months a year earlier.

Commercial banks in the country have increased lending rates by 200 basis points to 250 basis points since December and auto firms blame lower sales partly on high interest rates.

The State Bank of India Ltd., the country''s biggest commercial bank, said it would charge its best borrowers 12.75 per cent, the highest rate since April 1999.

Car sales in India have gained in eight of the past 10 years as interest rates halved in the period. Local passenger vehicle sales grew 20 per cent to a record 1.4 million units last year as State Bank of India and ICICI Bank Ltd., the two largest lenders, boosted credit.