Car sales in India are seen growing just 1% to 3% in the current financial year, an industry body said, slashing its previous estimates as high interest rates and slowing economic growth continue to stifle a once-booming industry.

Production cuts and temporary plant shutdowns have marked a torrid 2012 for India’s auto industry, a key market for global automakers hungry for growth, and compounded fears of an economic slowdown in Asia’s third-largest economy.

“Slowdown in economic growth and hence subdued rise in income, along with rising cost of ownership will further decelerate growth,” said S Sandilya, president of the Society of Indian Automobile Manufacturers (SIAM).

“This trend is likely to continue for some time until the economy comes back on track.”

Car sales in India grew more than 20% in the fiscal year ended March 2012, attracting billions of dollars in investment from global automakers.

“The earlier figure of around 10% will not be possible, it was too high,” RC Bhargava, chairman of Maruti Suzuki, India’s biggest car maker, told Reuters.

“But 1% to 3% is a little on the low side. I don’t think that the situation is that bad,” Bhargava said, adding that he expected sales to grow 5% to 6%.

Sales in India fell 5.4% in September, the second consecutive monthly slide, according to data released by SIAM earlier on Wednesday. SIAM had already cut its initial estimate of 10% to 12% growth to 9% to 11%.

SIAM also cut its motorcycle sales growth estimate for the year to 5% to 7%, from 11% to 13% previously. Commercial vehicle sales are seen growing 3% to 5%, SIAM said, down from 6% to 8%.

India’s automotive industry could miss a 2016 target of US$160bn turnover by about $30bn if the current trends continue, Sandilya added.

A hike in the price of subsidised diesel in September pushed up ownership costs and forced almost all of the country’s automakers to increase the price of their vehicles due to increased freight costs, further dampening demand.

Car makers have said that they expect sales to pick up during India’s festival season in October and November, when people typically choose to make big-ticket purchases.