NEW DELHI—New car sales in India gained the most in 10 months in June as a new government led by Prime Minister Narendra Modi helped improve consumer sentiment, but a full-fledged recovery for the once-flourishing industry may still be sometime away, the local association of auto makers said on Wednesday.
Sales rose 15% last month to 160,232 cars, the Society of Indian Automobile Manufacturers said. Sales in the three months ended June gained 2.2% to 444,242 cars, both over year earlier periods.
“There are some early signs of revitalization,” said Vikram Kirloskar, president of SIAM. “The new government has given positive impetus to consumer sentiment,” he said, referring to a recent extension of tax breaks on automobiles by six months to the end of December.
Maruti Suzuki India Ltd. 532500.BY -1.22% , Hyundai Motor Co. 005380.SE -0.67% andHonda Motor Co. 7267.TO +0.56% drove the growth in June sales.
Truck and bus sales, considered a barometer of economic expansion, fell 9% from a year earlier to 51,119 vehicles in June. However, that drop has narrowed since April, and month-on-month sales have also grown in the past quarter, a sign that demand is slowly recovering, Mr. Kirloskar said.
Despite the bounce back in June, automobile manufacturers may struggle to maintain the momentum in sales as high loan rates, rising fuel prices and sluggish economic growth has been sapping consumer demand.
The likelihood of below-normal monsoon rainfall this year is a further reason for worry as it can hurt rural incomes, Mr. Kirloskar said.
He said the Indian automotive industry would fall short of its target of reaching $145 billion in annual revenue by the fiscal year through March 2016 as sales of cars and commercial vehicles in the local market have declined over the past few years.
“We should be achieving $100 [billion] to $110 billion in revenue by 2015-16 which will be about 30% less than the target,” said Mr. Kirloskar.
Over the past couple of years, car makers have temporarily closed their factories and trimmed workforce amid rising inventory.