Passenger car growth in India is falling and, despite incentives and planned new models, could slip further before year's end, an analyst said on Thursday.

Global Insight's London-based Ian Fletcher said a decline in passenger car sales in July was followed by an even greater slide in August - 4.4% year on year.

He said that a combination of factors added to the seasonal slowdown as a result of the monsoons, including continued rising inflation that has resulted in India's reserve bank increasing interest rates, as well as rising fuel prices.

"Although automakers have sought to bring customers in to the showrooms by the use of incentives and new models are on the horizon, Global Insight expects growth to be lower than that seen last year and as a result further declines could be seen before the end of the year," Fletcher said in a research note.

He noted that market leader Maruti Suzuki's August sales fell 11.1% to 46,811 units last month, Hyundai made further gains of 34.1% to 21,607 units while Tata Motors sales dipped 10.1% to 12,216 units.

Commercial vehicle sales last month also fell, by 6.6% to 34,294 units.

"Having managed to make positive gains in the first half of 2008, the initial stages of the latter half of the year appears to have got off to a bad start with two months of consecutive declines," Fletcher wrote.

"This looks particularly bad when taking in to account the number of working days during August, which was around two more than last year and which is usually worth an around 4.5% increase per day. This time of year is not traditionally a strong one in the passenger car market, though, with the monsoon season taking place, but the pressure of this particularly harsh seasonal weather this year has added to the other pressures facing potential customers including inflation hitting new highs of over 12.5%, and as a result the Reserve Bank of India has sought to quell this by raising interest rates to 9%, with further rises expected in future putting pressure on the cost of borrowing from banks and other credit institutions.

He said automaker incentives had little effect as so may had been offered in the past that they could well have lost the positive effect they can have.

"Also, customers could still be reeling from the fuel price rise that took place in June, which may also deter buyers from showrooms,"  Fletcher added.

He expects a similar trend this month, so it will be up to the traditionally strong festive month of October, which includes Dussehra and Diwali, to offer some gains before the end of 2008 as that is a time of year when many Indian workers receive bonuses.

New vehicles such as the redesigned Suzuki Alto (soon to be exported as a Nissan) and the Getz-replacing Hyundai i20, will join the recently launched and heavily revamped Tata Indica Vista that is likely to give a boost to that automaker's waning sales.

Fletcher also noted that construction work had stopped at the new facility in Singur where the Tata Nano is set to be built as a result of protests regarding land owned formerly owned by displaced farmers.

"This means that there is unlikely to be the fillip in sales expected when it is launched, and the protracted negotiation process could mean that launch is some time away," Fletcher said.

Indian media has, however, suggested Tata would launch with Nanos built in its other plants, though at reduced volume.

"Ultimately though it is likely to be the economic issues that are affecting India at the moment that will hit the growth in the passenger car market in the near term, and it seems unlikely that growth rates will reach earlier levels as a result," Fletcher concluded.

"Global Insight forecasts that the increase in the vehicle market will be 7.4% in 2008, to 2.13m units, with the passenger car segment making up 1.35m units of this, an increase of just 6.0%.

"This means that we could see similar results to the current month's data, or even worse, many more times before the year is out."