India’s automobile sector is giving the economy a Diwali sparkle.

India’s automobile sector is giving the economy a Diwali sparkle. The country’s passenger vehicle sales grew the fastest among major automobile markets in the world in the fi rst eight months of the year, signifi cantly ahead of auto giant China, albeit on a lower base.

Despite demonetisation and the goods and service tax (GST) impacting demand, sales rose 9.57% to 2.12 million between January and August. China sales rose 2.24% to 14.8 million units. US sales dropped 12.15% to 4.13 million units in the same period.

SIAM had estimated at the beginning of the financial year that passenger vehicle sales will grow 7-9% in FY18. Growth in the first half has been in line with projections at 9.16% and the momentum is expected to continue into the second half.

Salary increases at the state & central level following pay commission recommendations are driving demand. Demand for passenger vehicles in the Indian market is being led by utility vehicles. There have been major launches in the segment from Tata MotorsBSE -0.47 % (Nexon), Jeep (Compass), Mahindra (KUV100 NXT), Volkswagen (Tiguan) & Skoda (Kodiaq) at aggressive prices spurring demand.

Additional production capacities are becoming operational, which will further help reduce waiting periods and support demand growth. Suzuki Motor Gujarat has started work to double production capacity to 500,000 units. Suzuki has also announced fresh investments of Rs 3,800 crore to set up a third assembly line in Gujarat to cater to demand at Maruti Suzuki, India’s biggest car maker. The expected increase in cost of ownership by 3-5% due to increase in fuel costs and insurance expenses, however, may put some pressure on demand.