The Society of Indian Automobile Manufacturers (SIAM) said domestic passenger car sales rose to 196,013 last month from 182,852 in January 2011, marking the third straight monthly gain for the sector.
Discounts from auto manufacturers, new car launches and improved demand for diesel vehicles have helped the industry bounce back.
Sales of trucks and buses — a key indicator of economic activity — climbed in January by nearly 14 per cent to 69,859 units from a year earlier, SIAM said.
India, which has been one of the world's fastest-growing car markets, saw sales fall earlier in the financial year as many buyers deferred purchases or cancelled them due to costly loans and rising fuel costs.
And the upturn in demand may not be enough for the industry to reach its target of up to two per cent growth for this fiscal year to March 31, SIAM said.
"Car sales are improving but it may not be sufficient to get the industry into positive territory by March," said SIAM's senior director Sugato Sen.
"We need to see 10 per cent growth in passenger car sales each in February and March, to achieve our projection."
India last saw negative growth in annual car sales in 2002, analysts said.
SIAM forecasts car sales will grow between 11 and 13 per cent in the next financial year, which starts on April 1, 2012.
Analysts believe car sales will keep improving in the coming months with India's central bank expected to start lowering interest rates as inflation shows signs of moderating.
Maruti reported earlier this month that sales in January rose for the first time in eight months, while rival carmakers have continued to show a steady pace of growth.
India, a country of 1.2 billion people, remains a hotspot for global automakers thanks to its stronger expansion compared with sluggish Western economies.
Car ownership remains low in India where the growing economy is minting new middle-class families each year. — AFP-Relaxnews
