The Society of Indian Automobile Manufacturers (SIAM) cut its car sales growth projection for the financial year 2013 to 9-11 percent from the 10-12 percent growth as expected earlier, amid concerns of escalating cost and sluggish demand for cars in the domestic market.

The Indian automobile sector saw good growth rates in the past years, except in the last year when it grew by just 2.2 percent. The auto industry is struggling to cope with the slowdown in the Indian economy in the current year.

A number of factors, including the rising cost of production, slowing economic expansion, high inflation along with slowing demand in petrol car segments, has made it difficult for the industry to achieve the targeted growth rate.

Many domestic car manufactures like Tata Motors and Maruti Suzuki have reduced their production in the last few weeks considering the slowing demand, Reuters reported.

Growth is moderating in the auto sector. The mood in the industry is of wait-and-watch, S. Sandilya, President of the SIAM told NDTV Profit.  

According to the data released by SIAM, passenger vehicle sales in India grew by 11 percent on-year-on year basis in June.

In the month of June, the car sales recorded a growth rate of 8.3 percent and sold 155,763 cars up from 143,851 in the last year, which is lower than the projected forecast for the year and is also the least growth rate clocked since last October.  

A steep rise in fuel prices has also affected the car sales badly. The petrol car segment saw a decline in the sales, post the Rs. 8 hike in petrol prices a month ago. The demand for diesel vehicles increased after the hike in petrol prices because the highly subsidized fuel is cheaper by more than 40 percent but there is concern that there may be a possible tax on diesel vehicles.

The industry body said it expects to revive during the second half of the financial year and that the cut in forecast is justifiable.

Fuel prices have come down moderately, interest rates are not going up, the government is under tremendous pressure to come up with reforms, we think it is kind of reasonable, Sandilya said.

However, the auto sector shares traded with gains in India's BSE Sensex and NSE Nifty. Maruti Suzuki gained 2.72 percent at the Sensex, Tata motors gained 2.58 percent followed by Bajaj Auto at 1.26 percent.