The high rate of interest for auto loans seems to make no difference in the demand for four-wheelers. However, manufacturers believe that sales could jump even higher if interest rates on loans are diminished. The auto sector put forward a proposal to RBI to amend the rate of interest, but it was disappointed with the RBI decision that the rates will remain unchanged. The reason for their firm decision was that without the support from the government, this change may cause negative effects on the auto industry.
The interest rates remaining the same will maintain the competitiveness and quality control between manufacturers, because an individual paying high interest rates for a car will be careful with the decision taken. This individual will also consider a car that lasts long and costs low maintenance since the period of interest can extend for almost five years or more. Higher interest rates will help avoid the rapid congestion of roads, though this may swing out of control with the launch of the Tata Nano.
The demand, supply, and choices for cars are increasing daily. All these new cars are introduced keeping the Indian in mind. The small car segment is already booming and is expected to reach a peak this year with the launch of the Nano. Therefore, RBI may still be able to control the purchases made in the luxury or compact car segment, but the small car segment will soon move beyond its power.