Indian carmakers posted impressive gains in February with sales touching record levels in current fiscal, amid fears that the upcoming budget may bring in some harsh news in form of higher taxes on diesel vehicles that have gained traction in recent months and are largely fueling growth in the domestic market.

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Maruti Suzuki India, the country's No. 1 carmaker, posted it's second straight gain in February after the company suffered declining sales for seven months in a row till December due a prolonged workers' strike at its Manesar plant. The company recorded highest domestic sales in this fiscal at 1,07,653 units, a gain of 6% over 1,01,543 cars sold in the year-ago period.

The company has increased production of smaller diesel cars in recent months. Sales of compact models like Swift and Ritz surged 31% to 27,899 units while the newly-launched compact sedan, DZire, posted a 59% jump in monthly sales to 15,068 units. All these cars are available in both petrol and diesel, but the latter forms bulk of sales with customers opting for cheaper-priced diesel-fired vehicles.

The second-largest carmaker in the pecking order, South Korean Hyundai Motor, scaled its highest ever domestic sales at 36,805, a growth of 12.8% over last year on the back of robust demand of its newly-launched compact car Eon. "Even in tough market situation, Eon sales have helped us to achieve the highest ever domestic sales," Hyundai's director (marketing & sales) Arvind Saxena said. The rise in demand also helped Tata Motors as sales jumped 9.16% to 34,832 units in February. Nano sales jumped 12% to 9,217 units during the month while the flagship Indica sales increased 4% to 10,424 units in February.

India, the second -fastest growing car market in Asia after China, suffered a slowdown in demand in 2011 as many potential new car buyers deferred purchases due to costly auto loans and rising fuel expenses.

However, analysts tracking the sector are betting on higher sales in the coming months and say that increased availability of diesel cars in the compact segment will propel sales. "The dynamic shift towards cars running on diesel, which is much cheaper than petrol is primarily driving demand in the Indian market," said Deepesh Rathore, India MD at IHS Global Insight Global Insight, an international consultancy.

However, the demand could also be led by interest rates rationalisation expected in the next few months. "The Indian auto sector will see a great demand push with improved liquidity and drop in interest rate on loans that are expected to follow in coming months and will induce customers to buy new cars. We are expecting impressive sales from the second half of 2012 on the back of economic recovery," said Kishor Ostwal, chairman of CNI Research, a Mumbai-based consultancy.