The sales downturn is expected to have a drastic impact on the jobs market and the FDI inflows into the sector.
In recent days, senior officials from various ministries have held a range of discussions on the issue to come up with measures to arrest the sales decline.
According to sources, the Central government might bring in a proposal to lower GST rate on automobiles which is currently in the highest 28 per cent tax bracket. Alternatively, the cess over GST slab rate applicable on automobile may be lowered.
"Other incentives are also on the cards to boost liquidity that will aid sales. Scrappage policy is another step in this direction and the government might call a meeting with all the stake-holders soon to discuss these urgent steps."
The development comes after the ongoing sales slowdown showed little signs of abating. Apart from the slowdown, a weak monsoon and liquidity constraints have hampered sales.
The automobile sector has been impacted the hardest among major manufacturing sectors due to a consumption slowdown and the weak monsoon might just accentuate this trend.
Industry insiders opined that the slowdown is a culmination of high GST rates, farm distress, stagnant wages and liquidity constraints.
Figures from the Society of Indian Automobile Manufacturers (SIAM) showed that domestic passenger car sales in June went down by 24.07 per cent to 139,628 units.
In the commercial vehicle segment, domestic sales were down by 12.27 per cent to 70,771 units last month.
Additionally, overall sales of two-wheelers, which includes scooters, motorcycles and mopeds, edged lower by 11.69 per cent to 1,649,477 units.
Consequently, the total sales of the Indian automobile sector declined by 12.34 per cent during June 2019 to 1,997,952 units across segments and categories.
The slowdown also led to manufacturing curtailment with the domestic passenger cars' production down 22.26 per cent to 169,594 units from 218,167 units.
Similarly, commercial vehicle production was down by 23.39 per cent to 69,496 units last month. Overall two-wheelers' production edged lower by 11.70 per cent to 1,915,195 units.
Accordingly, the total production of the Indian automobile sector declined by 12.98 per cent during June 2019 to 2,336,138 units across segments and categories.
( With inputs from IANS )