With India’s automobile sales at an inflection point, a report by Kotak Institutional Equities suggests that a cut in fuel prices could provide a significantly larger boost to vehicle demand than interest rate reductions.According to the report a ₹4 per litre cut in fuel prices could reduce the total cost of ownership for two-wheelers and passenger vehicles by up to 3%, while a 100-basis-point cut in interest rates would only reduce ownership costs by 0.5–1%. The implication is clear: if policymakers want to spur consumer spending and revive vehicle demand, slashing petrol and diesel prices offers far more bang for the buck than tweaking repo rates.
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