NEW DELHI (AFP) - India's passenger car sales shrank for the first time in a decade, falling 6.7 per cent in the year to March, hit by a slowing economy and high interest rates, a top industry body said on Wednesday.

Passenger car sales in the once-booming market fell to 1.89 million units in the financial year to March, from 2.43 million the previous year, the Society of Indian Automobile Manufacturers (SIAM) said in a statement.

Sales in March alone plunged 22.5 per cent year on year, SIAM said.

"The basic problem has been the big downturn in the economy and high interest rates; they have knocked sales," Sugato Sen, SIAM deputy director general, told AFP.

Asia's third-largest economy is estimated to have grown by five per cent in the financial year to March 2013, the slowest for a decade.

The last time annual car sales shrank was in 2002-03, SIAM said.

"These figures have disappointed all our earlier forecasts - there has been a reversal in buying behaviour," Mr Sen said.

The figures are a sharp turnaround from scorching growth in years up to 2010-11 when sales expanded 20-30 per cent annually, prompting foreign automakers to shift into the nation to offset weakness in developed markets.

Indian car buyers now are being bombarded with "buy now, pay later" offers as sellers battle to stimulate consumer demand. Other offers to lure buyers back into showrooms include interest-free repayments and discounts of up to 20 per cent.

To reduce inventories, automakers have been shutting production lines, while investment is already slowing, according to industry figures.