Indian car sales slid almost 16% year on year in July, their biggest drop in nearly three years, as high interest rates kept buyers out of showrooms, data showed on Wednesday.

Volume plunged 15.76% to 133,747 units from 158,767, AFP reported, quoting the Society of Indian Automobile Manufacturers (SIAM ).

“People want cars, they want mobility, but they may be postponing their purchases hoping interest rates will go down,” Vishnu Mathur, director general of SIAM, said in New Delhi.

The drop was the steepest since November 2008 when sales fell over 19% as the global financial crisis kicked in.

The decline was the latest sign of a weakening of India’s economy that is expected to be exacerbated by renewed global financial turmoil.

Last week, the HSBC Purchasing Managers’ Index, keenly watched as a leading growth indicator, showed the pace of manufacturing expansion hit a 20-month low in July.

Mathur said car sales could pick up with a flurry of upcoming model launches beginning this month and the religious festival season starting in September – seen as an auspicious time for Indians to make new purchases.

Rising vehicle costs on the back of steeper commodity prices, higher fuel prices and 11 interest rate hikes by India’s central bank since March 2010 to tame near double-digit inflation have combined to hit demand, SIAM said.

Earlier this month, Maruti Suzuki, reported a 25.3% drop in sales, its sharpest-ever monthly fall, due to higher borrowing costs and production disruptions, AFP noted.

But the SIAM executive director said the group was sticking to its growth forecast projecting a 10% to 12% rise in passenger car sales for this fiscal year.

The forecast has already been revised downward once.

Car sales grew by 30% to 1.98m units during the fiscal year to 31 March 2011, the most in over a decade, as an increasingly affluent middle class snapped up new models when borrowing costs were lower.

Mathur said the longer-term outlook for the car sector remained positive thanks to India’s highly underpenetrated market.

Just one in 10 households in urban areas and one in 50 in rural areas owns cars.