According to the firm, the fall was the industry’s first year-on-year decline in more than a decade – the last time sales were below the previous year was in 2001, albeit by less than 1%.

The decline in 2013 though was far worse, notes LMCA: light vehicle sales shrunk 10% YoY to 2.93 million units. The passenger vehicle market contracted 7% YoY to 2.37 million units, while the demand for light commercial vehicles up to GVW 6 tonnes slumped 22% YoY to 560k.

In December alone, sales at 216k were 9% below the same month a year ago. The volume was divided between 173k Passenger Vehicles (‐8% YoY) and 43k Light Commercial Vehicles (‐11%).

On a seasonally adjusted annualized rate basis (SAAR), sales were at 2.82 million units in December, down from 2.84 million units in November and 3.13 million units in October. The December SAAR was also the lowest in the year.

Furthermore, sales at the start of 2014 have not been very promising, says the firm. Preliminary data indicates OEMs may have posted decline of 5‐6% YoY. This was anticipated since the negative environment has not changed much.

Confidence in India remains weak following two consecutive years of weak GDP growth of under 5%, which has led to less job creation, and thus lower income growth.

CPI inflation (10.6% on average in Q4 2013) has remained stubbornly high, and is also stoked by a weak rupee. With inflation staying high, India’s central bank is not taking any chances.

At the end of January, the Reserve Bank of India (RBI) raised its benchmark lending rate by 25 basis points to 8%. This is the third rate hike since September 2013.

‘Although the RBI has indicated further monetary tightening is unlikely if this latest round of rate hike is able to bring down retail inflation, we cannot completely rule it out. The concern is that India is getting into a vicious cycle – where high interest rates are depressing both demand and investment and aggravating supply bottlenecks, i.e., driving up inflation,’ said Ammar Master, senior market analyst for India at LMC Automotive.

The firm added: ‘Nonetheless, we are cautiously optimistic that vehicle sales will grow by 7% YoY to 3.12 million units in 2014. We think new models will help create excitement, and also expect buyers to come to market once political uncertainty clears after the April/May general elections. At the same time, we are aware the risk to our forecast is on the downside.’