Mumbai: Car sales in India climbed almost a third in September versus a year, industry data showed on Friday, but growth is seen moderating as borrowing costs rise and as parts makers struggle to meet demand.

Automakers such as utility vehicle leader Mahindra & Mahindra and Maruti Suzuki, which produces every second new car sold in the country, have had to curtail production in recent months because of the slow pace of growth in component supplies.

“Post this festive season we may not see a similar pace of growth as to what we have seen in the recent past," Ambareesh Baliga, vice-president of Karvy Stock Broking, said. Demand in India usually rise during the festive season that starts in September and peaks in November after Diwali, the Hindu festival of lights, when most workers get their annual bonuses.

India has raised interest rates five times since March by a total of 125 basis points to clamp down on inflationary pressures and this could make auto loans costlier.

“In the (fiscal) third quarter, we expect some moderation in growth because Q3 of last year was one of the best growth quarters for the industry," said Pawan Goenka, president of the industry body Society of Indian Automobile Manufacturers (Siam).

He forecast the auto sector industry would grow by 18-20% in the financial year that ends next March.

Still, India is one of the world’s fastest growing market for cars as a rapidly expanding economy boosts incomes and consumer spending.

While demand in developed markets is stuck in low gear, global automakers have been increasing their focus on faster-growing regions such as China, now the world’s largest auto market, and India.

The loss of government incentives to buy new cars in Europe and Japan led to steep sales drops in September from a year ago. The outlook for growth in Asia’s third-largest economy remains strong with the International Monetary Fund saying on Wednesday emerging economies were set to expand nearly three times faster than rich nations.

Borrowing Costs

A total of 169,082 cars were sold in September, data from Siam showed.

“Any further increase in interest rates will lead to a slowing down in sales growth. Auto finance rates have not gone up for the past four quarters. Now, banks’ capacity to absorb the hikes and not pass on has been exhausted," Goenka said.

Maruti, 54.2% owned by Japan’s Suzuki Motor, expects to sell 1.2 million vehicles in 2010-11 from 1.02 million in the previous year, it said last month.

Siam said sales of trucks and buses, a barometer of economic activity, rose 29.6% to 59,455 units in September.

India’s auto sector index was down 1.7% at 0831 GMT in a Mumbai stock market down 0.6%.