The Indian automobile industry has been dealt a double whammy, or at least what looks like one on the surface?a few banks have decided to play spoilsport by hiking auto loan rates by 25-100 basis points, on top of the finance minister?s move to raise excise duty by two percentage points in his Budget speech.

It may seem obvious to then deduce that Indian auto would screech to a halt in such a scenario. But it may not prove to be the case, at least till such time when automakers would look to raise prices further when the government?s new emission standards come into effect from April 1.

It is very unlikely that the nominal hike in auto loan rates by up to one percentage point would impact sales this month. It does not add anything substantial to the EMI on a monthly basis. A hundred or two here or there is not likely to hurt today?s middle class and analysts feel that the ongoing developments may not even register with carbuyers who are just looking to step on the gas and speed away. In any case, not all the banks have raised the rates and there are quite a few public sector banks that customers can bank on for lower interest rates.

Further, the month of March is usually good for automotive sales, as customers purchase vehicles to claim depreciation in that fiscal year. It would be safe to assume that March will not be any different this time.

To understand the argument that auto sales may not slow down to a great extent, one has to just look at the current demand environment.

According to data issued by the Society of Indian Automobile Manufacturers (SIAM), car sales jumped 33% last month to 1,53,845 units from 1,15,505 a year earlier. That kind of a robust performance is on the back of a 32% year-on-year rise in January and a 40% increase in December. In November last year car sales had surged 61%, which was the fastest pace of growth since February 2004.

So it has been red-hot going for the past six months or so. That?s the reason why no manufacturer is sweating over the recent developments. The 2% raise in excise duty has led to carmakers increasing the prices but it remains to be seen whether that?s going to have any significant bearing on sales. The government hiked vehicle excise duties in the budget as part of a rollback of stimulus measures aimed at shielding India?s economy from the global financial crisis. Analysts believe that there could be a temporary slowdown (compared to the current rate of growth) on account of this, but that too would pass, as there is plenty of pent-up demand still.

As things stand now, the Indian auto market is forecast to treble over the next decade to six million cars a year from the current two million. US-based consultancy Keystone?a subsidiary of LaSalle Consulting Associates?has in fact predicted that India will become the world?s third largest automobile market by 2030, behind just China and the US. The consultancy has pegged China at 62 million units and the US at 23 million units.

The Indian vehicle market, according to the consultancy, would cross 20 million by then. The next two countries in the pecking order would be Brazil and Japan, whose sales are projected to be in single-digit millions. Currently, the top five motor vehicle markets are the US, Japan, China, Germany and the UK.

But then, it may not be very prudent to look that far ahead. Just around the corner there could be a speed breaker. It is no secret that carmakers are a tad worried about what could happen when new emission norms come into the picture.

Come April, the industry will surely see another round of price hikes as auto companies will pass on the cost incurred on upgrading to new emission norms of Bharat Stage (BS) IV in 13 cities and BS III in the rest of the country. The industry is expecting a similar kind of hike which happened after excise duty was raised, and that is sure to affect the consumer.

Industry watchers say that when a similar event (new emission norms) took place in 2005, it took more than six months for sales to recover. However, it can be argued that 2010 is no match for those days when competition was not as intense.

The recovery could happen faster this time, yet there is a lurking fear that the change in emission norms could be the nail that can deflate the bull run in auto.

dj.hector@expressindia.com